Of all the things you can do with money, few are more boring than putting it into a savings account, right?
Spending it? Now, that’s fun. Investing can be enjoyable, too. But parking some money in an “interest-bearing” savings account where $1,000 may turn into $1,001 in a year’s time? Who needs it?
You do, and so do I.
Making Savings More Exciting
Imagine that every dollar you put on deposit will improve your health. Research shows that people with an adequate emergency fund experience less stress than those that don’t.
If you’re married, imagine that every dollar you put into savings is an investment in your relationship. Research shows that couples that live within their means, putting a portion of their earnings into savings, are happier than those that don’t.
No matter what your situation, let’s face it: in life, stuff happens. Cars break down, costing us more than we have in our maintenance and repair fund (you do have a maintenance and repair fund, don’t you?). Other unplanned expenses pop up.
For all those reasons and more, it’s important to pay yourself second.
“Ah, Matt, isn’t that supposed to be, ‘Pay yourself first?’” No. It’s important to pay your purpose first, and then pay yourself.
How Much Should You Keep in Savings?
If you have any debt other than a reasonable mortgage, build a savings account with enough money to pay one month’s worth of essential living expenses. Then, go after your debt. Once you’re out of debt, build an emergency fund valued at three-to-six months’ worth of essential living expenses.
How much is that for you? Take a look at the categories on my Cash Flow Plan worksheet and highlight the ones that are truly essential.
If you lost your job tomorrow, going on a vacation probably wouldn’t be a high priority. But you’d still need to pay your mortgage or rent and utilities, buy groceries and other essentials.
Where Should You Keep Your Savings?
None of the choices for savings accounts are very attractive these days. Interest rates are extremely low.
However, online banks usually pay better rates than brick & mortar banks. As do credit unions.
But earning interest isn’t a primary goal of an emergency fund. Mostly, you just want your money to be safe and accessible if you need it.
Two final words of recommendation about savings. First, keep your emergency fund in a separate account. When people keep money intended for emergencies in their checking account, it usually leaks. It’s just too tempting to use it for other things.
Second, I recommend that you maintain three savings accounts – one for an emergency fund, one for the replacement of big-ticket items like your car or your home’s furnace, and one for bills or expenses that occur at some point each year but less often than monthly.
Where do you keep your emergency fund money? Let me know in the comments section.
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