CNN Money is featuring stories from six young Americans, all of whom have managed to save substantial amounts of money as kids. When I was a teenager, saving money was never a priority for me. I understood the concepts, but I was more concerned with other things in my life: my hobbies, activities, school, and friends. I found jobs during my breaks from school, but I didn’t save much of what I earned. I certainly didn’t think of saving up for a large purchase, much less saving for retirement.

The kids featured in the CNN Money article are off to a great start. There’s a 23-year old who has been saving since he was eighteen, and he’s accumulated $25,000 for retirement. A fourteen-year-old has accumulated $10,000 by saving from age eleven. I didn’t have $25,000 in my retirement account until I was 28 or 29.

Oh — there’s also an eighteen-year-old who has been saving since age eleven, Grace Goldoni from Princeton, New Jersey (down the street from me), who through babysitting and “lots of retail work” has saved $300,000. I’m still trying to wrap my head around this one. Perhaps it’s a typo, and she saved $30,000, or perhaps she’s just found lucrative clients and high-paying retail. Assuming eight complete years of saving, she’s managed to put away $37,500 per year, after taxes.

Grace admits that her parents “sometimes… match the amount” she saves, but I still find it difficult to fathom how babysitting and retail — working part-time while attending middle school and high school — can contribute to $300,000 in the bank. Even compound interest wouldn’t have made that much of a difference due to low interest rates the last few years. Perhaps Grace invested some money and got lucky with a stock or two.

CNN added a disclaimer to the article, which I don’t believe was there the first time I read it:

In addition to saving the money she earns or is given as a gift, Grace does side jobs, like tutoring, and sells textbooks and clothing so that she is able to put even more money into her savings.

It seems others may have recognized that Grace’s results are a little out of place when compared to the other featured young adults in the article. I wonder what percentage of the $300,000 is a result of gifts. I’ve sold textbooks, sold clothing, and tutored as well, and I can’t imagine those activities contributed significantly to her savings.

Regardless of how she came up with $300,000 as a teenager, it’s a great start for a life of financial freedom. If she can convince or inspire other teens to save, particularly those who live in an area not nearly as wealthy as Princeton, the details don’t matter.

What could you have done to have saved $300,000 by the age of eighteen? Or, if you had saved $300,000 before becoming an adult, how did you do it?

CNN Money

The original version of this article, Saving $300,000 By Age Eighteen, is copyrighted by Consumerism Commentary.

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The dangerous thing about advocating more saving and less spending, a responsible approach to personal finances, is that when the public applies this approach, the economy doesn’t move forward.

The Commerce Department released consumer data from June today showing that personal spending dropped 0.2% during that month, the biggest decline since September 2009. It took even the expert analysts by surprise, as on the whole, they were expecting an increase in spending. The savings rate (measuring savings as a percentage of income) jumped from 5.0% to 5.4% in June.

While savings has increased, banks are still getting away with offering low interest rates. For savers, who would have done better to save when rates were high and, in some cases, spend when rates are low, are taking the opposite approach. This is a saver’s dilemma, but it isn’t the only problem.

The rate of unemployment is still high. Businesses won’t hire more employees right now because:

• employers are getting by, doing more with less;
• employers are not convinced the economy is recovering; and,
• employers won’t hire until their customers spend more on their products.

This isn’t true for every employer, though. My friend owns an audio-visual event production and installation business, and he’s having trouble finding a qualified salesperson to add to his team. Regardless of this fruitless search, until consumers start shifting their financial attitude towards spending and away from saving, employers will keep functioning with the resources they have. The public, though, won’t spend more until they have jobs or feel more secure in their employment.

CNN Money

The original version of this article, The Unemployment Cycle, is copyrighted by Consumerism Commentary.

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Upromise takes the concept of earning cash back on everyday purchases and aligns this benefit with saving for college or paying off student loan debt. You buy groceries anyway; Upromise helps you earn cash back on what you buy and use that money for your education expenses, the education of a relative, or for any other purpose. You don’t even need a credit card.

I first starting using Upromise several years ago. BY registering my grocery story loyalty cards in the program, Upromise automatically adds cash back to my account regardless of how I paid for the items. With a cash back credit card, I earn the cash back offered by the credit card in addition to the Upromise bonus. Since I joined, the program has added many features to help save money, including the ability to link the Upromise account to a savings account, help you receive the cash back faster and earn more interest.

Earning cash back using Upromise

There are several ways to earn cash back with Upromise once you become a member.

• You can earn cash back using Upromise by using the website’s shopping portal. Before you make any purchase, check Upromise to see if you can find what you’re looking for at a good price at one of the 600 online retailers that are partners with Upromise. This can provide you with a cash back rate of from 1% to 25% of your purchase price. The most popular stores are eBay, Target, Walmart, and JC Penney, but there are hundreds of categories of stores and many familiar faces, like The Home Depot, The Apple Store, Dell, Verizon Wireless, and Macy’s.
• Another method of earning cash back with Upromise is to register your credit cards and debit cards — particularly any cards you use when you dine out at restaurants. When eating in a restaurant that participates in the Upromise program, you can earn up to 8% of your meal’s cost in the form of cash back rewards. After Upromise was introduced, a friend of mine who had signed up made a habit of paying for dinner at any large group outing, after collecting cash from the group of friends. Collecting cash back on a large meal can give your savings or 529 account a significant boost.
• Unique to the Upromise program, you can enroll your grocery store, supermarket, and drug store loyalty cards to the program. Certain products, like Bounty paper towels, Fisher walnuts, and Bic shavers qualify for extra savings. In preparing for this review, I’m a little disappointed to see the list of items is much smaller than it used to be. Nevertheless, if you buy the products on the list, you can save money on deals beyond any coupons you have — a help to anyone aspiring to be an extreme couponer. You get cash back even if you buy your groceries with cash rather than a credit card.
• Lastly, you can invite your friends to be included in your account. Any shopping they do through any of the above methods will result in the cash back being attributed to your account.

Upromise credit cards

Upromise teamed up with Bank of America to offer two credit cards designed to provide more cash back beyond what’s available above. One card focuses on gas and grocery card rewards and the other focuses on dining and grocery card rewards. With both cards, the cash back you earn, up to 10% extra cash back above the Upromise program, is applied to your Upromise account.

Redeeming cash back from Upromise

It used to be a hassle to get cash back from Upromise. You needed to have a 529 education investment account or a student loan managed by a particular loan servicer. There was a method of receiving a check for the cash back you had earned, but the instructions for requesting the check were hidden deep within the Upromise website.

Now Upromise is a part of the SLM Corporation, the company that also owns Sallie Mae Bank. When you transfer your cash back to Sallie Mae Bank’s high-yield savings account, your rewards earns interest and you can withdraw the money for any purpose you like. This way, those who aren’t saving for college for themselves or for a relative and those who aren’t paying down their student loan debt can take advantage of what Upromise offers.

These are the options:

• Deposit your cash back into a 529 education investment account for you or a family member.
• Transfer your cash back to your student loan to help pay off your debt.
• Move your rewards to a Sallie Mae high-yield savings account.
• Request your rewards to be sent to you in the form of a check.

Are the prices higher for Upromise shoppers?

One of the most frequently asked questions about shopping with Upromise and other cash back rewards portals is whether retailers artificially inflate the price of an item when they know you’re shopping through a cash back portal. The prices when you shop through the portal are the same prices you’d see when you don’t shop through the portal. Keep in mind that the stores that partner with Upromise may not have the lowest prices among their competitors. For example, Barnes & Noble is available through Upromise’s portal, but even when taking the cash back into consideration, you might be able to find the book you’re looking to buy for a better price on Amazon.com.

One could argue that as a whole, prices of products increase for all customers as a result of cash back programs; this, and other increased costs for merchants like credit card processing fees, means stores need to charge higher prices to maintain a certain level of profit. There’s no specific study I’m aware of that identifies this effect specifically for cash back programs. Regardless of the impact of rewards programs on the overall economy, shopping on Walmart.com with Upromise is better for a consumer than shopping on Walmart.com without Upromise.

Enrolling in Upromise

It’s free to join Upromise, so if you’re interested, sign up today.

The original version of this article, Upromise Review, is copyrighted by Consumerism Commentary.

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ING Direct unveiled a new savings product designed to help encourage kids to learn the benefits of better financial habits early on. The Kids Savings Account isn’t much different from ING Direct’s standard Orange Savings Account for adults. Even today, Orange Savings Accounts be jointly owned by a minor if the joint owner is over the age of 18, but this new product takes the concept of a jointly-owned account and adds two things:

• Kids will be limited from transferring money without the assistance of the account’s adult joint owner.
• The account will provide easy access to materials from ING Direct designed to help parents teach kids about managing money properly, like Planet Orange.
• Young account owners will receive emails with statement reminders and can customize the account by assigning an account nickname and a Saver’s ID.

An adult can initiate an automated transfer to the Kids Savings Account to provide a regular allowance. The adult included on the Kids Savings Account does not need to be the child’s parent; any relative or other adult can serve in this role. When the young account owner reaches the age of 18, the account converts to a regular jointly-owned Orange Savings Account, and both joint owners will have full capabilities for transferring money to and from the accounts.

The Kids Savings Account earns the same interest rate as the Orange Savings Account. For current customers of ING Direct with kids, the account seems like an interesting way to approach the topic of savings.

The original version of this article, ING Direct Kids Savings Account, is copyrighted by Consumerism Commentary.

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Yahoo Finance is producing an ongoing series of videos for their Financially Fit column. Each video focuses on an individual’s story. For example, they follow a New York City resident who saved $14,000 throughout the past year by downsizing his apartment and by choosing staycations rather than traveling.

Personally, I don’t really consider “not spending” money as saving money, which would be the case with the vacations, but it allowed this particular individual come up with the calculation. The series is hosted by Farnoosh Torabi, who has been a guest on the Consumerism Commentary Podcast.

Watch one of the videos in the series here:

Have you saved thousands of dollars and are you willing to share the story? I bet most Consumerism Commentary readers will be able to come up with a creative calculation to showcase savings.

The Yahoo Finance producers are looking to feature someone living within a day’s driving distance of New York City, and they will drive to you to film the feature. If you have an excellent story, though, and you don’t live in the states surrounding this particular metropolitan area, they will fly to your location.

There’s one catch: As the series is underwritten by a credit card company, the savings tactics including in your story can’t include cutting up credit cards or switching to a cash-only philosophy for your expenses. It shouldn’t be too difficult to get around that limitation, and as I said, if the sample video included above is any indication, your calculation can be somewhat creative. As part of his $14,000 savings, Anshey Bhatia saved $6,000 by not taking large vacations. Using the same logic, I saved $70,000 this year by not buying a BMW 335is Convertible.

Then again, I suppose that since I haven’t been in the habit of buying BMWs in the past, there wasn’t really a change in my approach that resulted in that savings. Perhaps you will be more creative than I.

If you have a story about your own saving accomplishments and are willing to go on camera to tell it to an audience, let me know — either in the comments or by contacting me. I’ll pass your information to the producers. While they are looking for people available in the next few days, this is an ongoing series, so the opportunity won’t be going away.

The original version of this article, Yahoo Finance Looking for Savers: Be On TV!, is copyrighted by Consumerism Commentary.

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According to the government’s figures, inflation was a modest 2.7% over the twelve months ending in March. The Consumer Price Index (CPI) is the Bureau of Labor Statistics’ popular measure of economic changes affecting typical consumers in the United States. It’s a figure we often compare to after-tax savings interest rates, reminding us that our funds locked safely away in FDIC-insured banks are losing real value every day. Even supposed high-yield savings accounts are no match for the government’s figures.

This comparison doesn’t make sense on an individual level because the CPI is not an individual measure. Overall, we can look at the economy and see that an increased number of people who are saving and the increase in savings account balances coinciding with a bigger spread between the interest rate earned after tax and the CPI can be bad, but any individual cannot use this information to make financial decisions.

The Saver’s Dilemma is that as a whole, we tend to save more when it’s less financially advantageous, avoid debt when it’s cheap, and spend recklessly when we would be rewarded for saving. Furthermore, the government’s numbers hide the reality that individuals deal with. Personal rates of inflation are often much higher than official statistics, due partly to limitations in the calculation and partly to individual spending patterns. It helps to remember than savings accounts are primarily for cash that you need within a year, including an emergency fund, so the interest rate should be mostly irrelevant.

Here’s a rundown of some of the flaws or limitations of the Consumer Price Index:

• CPI focuses on urban consumers. Rural consumers may have different experiences that are not reflected in the calculation. This may help to hide price increases that millions of Americans experience due to rural reliance on transportation, for example.
• The components of the CPI, such as food and energy, are weighted. The price of food and beverages comprises 14.792% of the CPI while medical care is weighted 6.627%. These percentages might not reflect any individual’s spending patterns.
• The sample ages differently than any individual. Forgetting the concept of emotional age, individuals age linearly. Each year you will be one year older than the last. The change in your income, for the most part, increases with your age. The age of a population sample does not progress in a straight line. For example, baby booms can skew the average age downward from one year to the next, when those babies are old enough to become part of the sample.
• Personal desires become needs. Over time, the middle class has become better off. It was once a luxury to own a television sets; now households often own two or three high-definition TVs and several computers. The standard of living has increased and what it means to “get by” has changed. This is an overall observation, but it might apply to you without being reflected in the CPI.

These limitations make it difficult for you to calculate your real return. Convention calls for subtracting the inflation rate from your investment return to determine your “real” rate of return. That may be fine for comparing your performance with other possible investments, but it doesn’t provide a true understanding of how your purchasing power has changed. Your purchasing power depends entirely on what you purchase.

Look at your real expenses. This is easy to do if you track your spending. How much do your expenses change from one year to the next? Your personal rate of inflation may be much higher than the CPI for a number of reasons:

• You have more money to spend.
• Your tastes change and you want better quality products.
• You were hit with major one-time expenses.
• Your children are getting older.

While you may be getting more for your money in some areas, you’re not in others. Food prices may increase, but if you have three mouths to feed this year when a year ago you had only two, the effect of the price increase will hit harder. If your company moves to a new location twice as far from your home as last year, the increase of the price of fuel is more damaging to your finances than the CPI would indicate. While your $2,000 computer today will be more powerful than a $2,000 computer last year, it still serves the same functions.

Silent inflation — the increase of the cost of your particular mix of expenses and the change in your spending behavior — is what is destroying your net worth. There’s no investment that sufficiently fights this type of inflation. There are two proven strategies:

1. Spend less money. Consciously controlling your expenses and cutting back on certain expenditures can reverse the effect of your personal inflation. Obviously not a popular approach except among the terminally frugal, almost everyone can find ways to shave the top off their expenses. David Bach, who created the Latte Factor, talked with Consumerism Commentary about options for individuals who already cut their expenses as much as possible but still wanted to save their finances.
2. Earn more money. You can only cut your expenses to a point — the point at which you are spending only on necessities for life. Once you reach that point, earning more is the only option. Even when you have more to cut, you can benefit from earning more. Although a penny earned is not worth as much after tax as a penny saved, the possibilities for increasing income are limited only by your time and your willingness to learn new skills and take on new projects.

Often, people suggest investing in assets that produce revenue, like rental properties, as a way to put yourself on the better side of inflation. Aside from the risk involved with any type of investment, the benefit might not be so great. If you can increase the rent with the increase in the CPI, for example, you will increase revenue to the landlord, but the landlord’s expenses will also increase. Raising rents may not be pure profit.

Calculate your personal rate of inflation by comparing expenses from the past 12 months to your expenses from the 12 months prior. Did the expenses increase? If so, are you living better off than you were in the previous year or does the increase not reflect any substantial changes in your lifestyle?

Bureau of Labor Statistics

The original version of this article, Silent Inflation Is Destroying Your Net Worth, is copyrighted by Consumerism Commentary.

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At Consumerism Commentary, I’ve been writing about putting money into high-yield savings accounts for as long as this website has been around. Just as people started getting the message, banks pulled the rug out from under their customers. The Federal Reserve made cash easy and cheap from banks to access, and since the low federal rates were announced, there has been no incentive for banks to pay those high yields.

High yield savings and money market accounts, alternatives to the typical savings accounts offered by primarily brick-and-mortar banks, helped savers keep their money safe while beating the average rate of inflation. You could put your money in the bank and not have to worry about your cash losing value over time or losing your deposit when a bank closes, thanks to FDIC protection.

More people than ever may be saving money. The recession coincided with a “new era of thrift,” with reports in the media about the savings rate — the amount of income saved by Americans, not the interest rate — at long-time highs. This good news came at a time when the reward for doing so wasn’t much of a benefit. To spur the economy, the Federal Reserve cut the interest rate on the money it loaned to banks, and the banks in turn didn’t seek money from depositors like you and me. The low interest rates reflect the fact that banks don’t need to attract depositors when the Federal Reserve is a better source of low-cost cash.

While high-yield savings once helped savers maintain their purchasing power and liquidity at the same time, that’s not the case today. Even with a lower-than-average official rate of inflation, the real costs of living that people experience continues to rise. The money in high-yield savings accounts isn’t going to keep pace with increasing costs.

Once the public feels more confident in other investments — and it could be years before this occurs — people will take money out of savings. When money is invested in businesses, the economy will be seen as improving enough for the government to raise the federal funds rate. Banks will want to attract more depositors and savings interest rates will increase. This may be a simplified view of saving economics, but the result is what is expected: fewer people need to be saving in order for interest rates to make saving worthwhile.

It’s easy to say that keeping a portion of your wealth liquid in a saving account is a good idea even though there’s a bigger chance of losing purchasing power, and it is true. It’s becoming a more difficult argument, though, as people are tired of supposed high yields that for the most part have a maximum of 1.5% APY.

Any alternative to high-yield savings accounts are compromises, usually in the form of risk or liquidity.

• Certificates of deposit don’t offer rates much better than savings accounts today, and when they do, they require locking your money away.
• A common choice is investing in municipal bonds, generally considered safer, but even Vanguard is warning investors to be wary when investing in bonds. “… Yields aren’t likely to go significantly lower, and at some point when the economy does strengthen, they’re likely to push higher. When that happens, you’ll actually have principal depreciation that will at least partially, and perhaps entirely, offset some of your yield.”
• Peer-to-peer lending is touted online as an alternative to high-yield savings accounts but that is a bad comparison. There is a significant amount of risk when you lend money to an individual who may not be fully vetted, and you don’t have access to your money until it gets paid back.

Don’t forget the benefits of savings accounts, even if the interest rate isn’t high:

• You have almost immediate access to all of your money at any time.
• Your deposits are fully insured up to the FDIC limit. No one has ever lost any money in a savings account, even when their bank has failed.
• Savings accounts simplify better financial habits like automatic transfers from checking or paycheck accounts to an account not used for spending.

Saving is a dilemma because when the practice is adopted, particularly in an economic downturn when business lending and investment slows, the interest rates are lower. As the economy improves and more money is invested in businesses, interest rates are higher but fewer people are interested in leaving money in a savings account. Those who want to use a savings account regardless of the economy are subject to the interest rates defined by the whim of the economy. When interest rates are higher, people will save less money.

The original version of this article, The Saver’s Dilemma, is copyrighted by Consumerism Commentary.

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No one’s happy with savings account interest rates these days. Even so-called high-yield savings accounts are closer to zero than they have been in a long time. For me, they heyday of savings accounts was when they were earning 5% to 6% APY several years ago. Some people remember when savings accounts earned interest rates in the double digits.

In a world where debt is vilified, habitual savers feel neglected. They played by the rules and now there’s no longer a reward.

An article on Million Dollar Journey includes some reasons why low interest rates are a good thing. First, interest rates need to have inflation taken out of the picture to be meaningful. Rather than the interest rates that banks report, we should look at the spread between the rate of inflation and our interest rate. The higher the spread, with the interest rate being the higher rate, the better off savers are. If inflation is 0.5% when interest rates are 1.5%, the real interest rate is 1.0%. If inflation is 4% and interest rates are 4.5%, the real interest rate is only 0.5%. In this example, the lower interest rate of 1.5% is “better” than the higher interest rate of 4.5%.

This reasoning fails because it relies on the government-reported rate of inflation. Even in today’s low-inflation economy, costs of necessities are rising. The inflation rate may be close to zero, but real costs that people experience are going up. This increase is not going to be covered by bank accounts earning low interest. In theory, purchasing power doesn’t decrease as long as the interest rate stays about inflation, but in practice, that’s rarely the case.

The article also declares that you’re better off earning less interest in a taxable account, such as a savings account, because you’ll owe less tax. This is a crazy argument. It’s the same argument that people use when they say they want to work because hours because they’re afraid of being bumped into the next tax bracket. Almost all the time, more income is still more income.

It’s more tax, too, but not more tax than more income. If you earn $50 in interest, you may owe $10 in tax. You get to keep $40. If you earn $500 in interest, you may owe $100. You get to keep $400. Maybe you’re in a higher tax bracket, and you get to keep only $350. $350 is greater than $40, and therefore, it’s better to earn more money. This is a simplified example, but it’s rare that interest would be the cause of you owing significantly more tax to the government, and you certainly wouldn’t be owing so much that you get to keep less than you could if you had earned only $50 in interest.

The conclusion remains the same: analyze your risk, invest your money appropriately, and buy appreciating assets if they are on sale. Leave only as much as you need liquid in cash. Take the low interest rates for now for any amount of money that you may need to get to quickly. Don’t chase riskier investments just because the rates are low.

If the purpose of an interest-bearing account is to protect your purchasing power, most savings accounts fail on a personal level because the increase in our expenses never seem to follow the official inflation rates.

The original version of this article, Low Savings Interest Rates: Good or Bad?, is copyrighted by Consumerism Commentary.

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Whether you’re giving or receiving gift cards, it’s usually a pretty positive experience. Both the giver and receiver are often satisfied because most gift cards allow the receiver to spend money in the way they want, as long as the giver has taken the receiver’s interests into account.

Sometimes a gift card can miss the mark. If you have ever received a gift card that is not useful to you, you might be familiar with the frustration. Rather than spend money on something you don’t want and more importantly don’t need, take a look at Plastic Jungle and cash in your unwanted gift cards.

PlasticJungle.com is an online marketplace for everything related to gift cards. If you have gift cards you need to sell, Plastic Jungle will buy them from you for up to 92% of their value. If you need to buy gift cards, you can do that as well, and often for a significant discount.

Even though this service is fairly new, the merchants serviced by Plastic Jungle number in the hundreds. If your gift card is from a national retailer or restaurant, they will gladly accept it. In the rare chance that no offers are provided for your gift card, you always have the option of using eBay to sell your gift card at auction.

Selling your gift card with Plastic Jungle is simple. All you need to do is enter the following information:

• Gift card merchant name
• Gift card amount ($25 minimum is required)

After you’ve completed these quick steps, Plastic Jungle will show you their offers for purchasing the gift card from you. If one of the offers is appealing, accept the offer. The service has several options for paying you for your card. The PayPal option provides an instant payment to your bank account, while a check will take a few days to process. Plastic Jungle pays for postage, so mailing in your gift card to the site is free.

Buying gift cards is just as easy. When visiting Plastic Jungle, you’ll see a long list of gift cards for sale from hundreds of merchants. Each gift card is discounted up to 20% off its face value, and purchasing a card is simple and straightforward. Provide your credit card information to complete the purchase. In a few days, your gift card is on its way. Like the gift cards that you sell to the site, gift cards you buy from this service will be shipped for free.

If you find yourself in the frustrating position of having a gift card you won’t use, check out PlasticJungle.com. You might find a help someone who can use the card and earn some cash at the same time.

The original version of this article, Sell Your Unwanted Gift Cards at Plastic Jungle, is copyrighted by Consumerism Commentary.

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It’s easy to fall into financial habits. Even people who consider themselves inflexible can grow accustomed to a financial change after time. That’s the beauty of automation — an automatic 10 percent transfer to a high-yield savings account every time you receive a paycheck eventually becomes painless.

Habits aren’t always perfect; just as you adjust to your surroundings, it’s easy to forget the situation that inspired the habit, or even worse, that the automated transfer is even there. I suppose it’s easier for things to get lost when you have 60 or more financial accounts like me rather than fewer than ten like most normal people. (I have so many because I continually open new accounts of various types to review for Consumerism Commentary; without this website, I wouldn’t be such a collector.)

I’m making a few changes to my habits.

First, I have been using SmartyPig as a goal-oriented savings mechanism. Every other week, coordinated with my paycheck, $170 has been automatically withdrawn from my ING Direct checking account and deposited into my SmartyPig account. My plan when initiating the automatic transfer was to set aside money for a new digital camera, but since then I’ve decided I’m fine with my current equipment, which admittedly has expanded otherwise since initiating the savings goal, and I probably won’t buy a new camera for another year.

Now that the goal is complete, SmartyPig has stopped the automatic transfers.

I’m in the process of changing my method of dealing with charitable contributions. In the past, I’ve given to charity towards the end of the year. Last year, I matched Consumerism Commentary readers’ charitable donations for Thanksgiving in addition to giving independently to a few of my favorite causes, and I might do the same this year. I’m stepping up my charitable involvement by adding an automatic monthly contribution to my charitable gift fund which I will then use to grant donations to organizations as needed.

The disadvantage of using a charitable gift fund is my employer will not match funds. To have a bigger effect on an organization, as long as I am employed, I usually give directly the charity and submit the paperwork for my employer to match.

One of the biggest factors for me in growing wealth for retirement is the SEP IRA. Self-employed individuals can enjoy a high maximum on tax-deferred growth, and anyone can be self-employed to an extent. In the past, I’ve waited until tax time to fund each year’s SEP IRA, but now I’ll be making an automatic contribution of $1,750 on a monthly basis.

Still for me to consider is whether I should begin investing in a fund for a theoretical future child’s education. The tax benefits are helpful, but there’s no guarantee I’ll ever have children. The penalty for not using funds for educational purposes is steep, so although I may be missing out on some gains, I think I’d rather wait until I know children are in my future.

The original version of this article, Recent Changes in My Personal Finance Plan, is copyrighted by Consumerism Commentary.

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This article is presented by Kelly Whalen, Consumerism Commentary staff writer.

The temptation to spend money is everywhere, especially during the holidays. There is something magical about lights glowing, soft Christmas music playing everywhere, and the hustle and bustle of the holiday season that seems to make money fly right out of everyone’s wallet.

Whether you enjoy the busyness of the holiday as much as I do, or not, it’s likely you have a few gifts to purchase during the week leading up to Christmas. You may, like me, still have some items still unchecked on your list, or you might be one of the 19% of holiday shoppers who haven’t started their holiday shopping. Either way, you can get your holiday shopping faster than Santa can fill stockings by trying these suggestions to curb your holiday spending. (note: the same principles apply year round)

• Make a list, and check it twice: I’ve said this before, but it bears repeating. A holiday shopping list is the ideal way to keep your spending in check. Just like a grocery list it will keep you from forgetting you already bought a gift for Great Aunt Sylvia or worse leaving someone off your list.
• Take advantage of FREE Shipping Day: Today only, December 17, is “Free Shipping Day” at many etailers. For a complete list go to FreeShipping.com If a retailer isn’t on that list, try calling their stores or customer service line. Some companies, such as Land’s End at Sears, offer free shipping if you order from the store. What could be a better way to finish your gift list from the comfort of your own home.
• Look, but don’t touch: When you touch an item you are more likely to buy it, according to Time magazine. Keep your hands in your pockets, or if you can’t keep from touching look at the sticker price first, so you can shock yourself into not buying.
• Concentrate on the recipient: While it should go without saying, putting yourself in your recipient’s shoes will allow you to walk away from overspending. I found myself dreaming of a particular toy that I have not been able to find for one of the kids. After considering a web-wide hunt for said gift, I realized it was my own nostalgia that colored my perception of the “perfect” gift. I could give a gift that was similar for half the cost, and the kiddo would still be thrilled.
• Shop after the holiday: If you don’t have small children, or will be visiting far-flung relatives after 12/26, consider going shopping on 12/26 when the products in many stores are reduced significantly.
• Don’t try to do it all! Most of us have precious little free time. Use your free time to be with your family, or friends instead of focusing on hunting down the perfect gift, or squeezing in 5 holiday parties in 2 days.
• Opt out. Many families are scaling back, but you might consider opting out of gift exchanges altogether. This only works well for adults, or families with older children, so proceed with caution. Some families choose a vacation over exchanging gifts.

Do you have any tips for curbing your spending?

The original version of this article, Curb Your Consumerism, is copyrighted by Consumerism Commentary.

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In an effort to attract more new deposits, ING Direct is offering a new savings product with a high interest rate, the “Added Value” certificate of deposit (CD). If you are willing to deposit new money to ING Direct and let the bank hold that money for one year without any withdrawals, ING Direct will pay you a rate of 2.25% APY (as of October 18, 2009). This is the highest rate ING Direct is currently offering; the rate on the “non-Added Value” CD is 2.10% APY. Here are today’s best rates for 12-month CDs.

The interest rate offered on the “Added Value” CD is currently the best rate in the country for 12-month CDs among major national and regional banks. Is this a sign that ING Direct is returning to its roots as the bank that tops the charts for customers who are interested in having their money earn as much as possible while in mostly liquid accounts? I don’t think that’s going to happen; the interest rate on the bank’s flagship Orange Savings Account is currently 1.30%, ranking ING in the middle of the banks who claim to offer “high-yield” savings.

Customers tend to glow about ING Direct’s customer service, which shows that the bottom line is not always the primary, or at least not the only, concern for consumers.

The original version of this article, ING Direct Offers “Added Value” Certificate of Deposit, is copyrighted by Consumerism Commentary.

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Mention to your friend that you suddenly received an unexpected $1,000 and I would be willing to bet he could come up with several suggestions for you. Most of those suggestions will likely involve handing the money over to him. My first suggestion is to refrain from telling your friend when you have $1,000 more than you know what to do with. Once that is achieved, it is best to have some ideas in mind just in case this situation presents itself.

Money Magazine has eleven suggestions for people who find they have $1,000 sitting around without a planned destiny.

• Top off your emergency fund. If you don’t have an emergency fund, $1,000 is a great starting point. It is quite easy to open a high-yield online savings account so you can keep your emergency fund close while letting it earn as much as possible.
• Spend five hours with a financial planner. Here Money Magazine assumes you will go to a financial planner who charges $200 per hour. Unless your finances are unusually complicated, skip this suggestion.
• Buy a top-notch stock fund. Here Money Magazine suggest putting your money in actively managed mutual funds. I suggest sticking with low-cost non-managed index mutual funds. Vanguard requires $3,000 to start investing, but the low-cost Schwab Total Stock Market Index Fund (SWTSX) requires only a $100 minimum deposit.
• Upgrade your home appliances. I can see this being a legitimate option if you have problems with your appliances or need to switch to more energy-efficient models.
• Help on a large scale You can use the $1,000 for others’ good. Money Magazine suggestions buying sheep for farmers, offering small business loans through Kiva, and planting trees. Any charitable option is a good choice for an unexpected $1,000.
• Join a gym. If you know you can make your gym membership last, this could be a suggestion that saves money through your improved health. Otherwise, a gym membership could do nothing more than suck your money away.
• Beef up your IRA (if you’re 50 or older). Anyone age 50 or older with the appropriate level of income can invest an additional $1,000 above the standard maximum in a Traditional or Roth IRA.
• Pay down credit card debt. This should probably be towards the top of the list. Paying off expensive credit card debt saves you money in interest fees down the road. $1,000 can go a long way to getting out of debt.
• Update your estate documents. Money Magazine assumes you had your estate documents in order at one point. $1,000 should cover updates to your will, health-care proxy, and power of attorney.
• Start a young investor off right. Money Magazine suggests setting up a diversified portfolio for a child using a combination of Schwab’s low-minimum and low-cost index funds.
• Become a star at work. This is the most unlikely suggestion for spending your own $1,000. Money Magazine suggests taking a class, much like the improv class Smithee is taking, or any other course that might provide you with a competitive edge. Self-development is a good idea for your own money, but I wouldn’t spend $1,000 on an activity that does nothing more than increase my value to a corporation.

What would you do with an unexpected $1,000 right now?

What to do with $1,000 now, Money Magazine, October 12, 2009

The original version of this article, Ten Things to Do With $1,000 Right Now, is copyrighted by Consumerism Commentary.

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For most humans, life is much shorter than we would like, and for many of us saving even ten percent of our income will never result in a state of wealth within our lifetime. There are too many forces working against this endeavor: a lack of sufficient opportunity, inflation, and unplanned events to name a few. In addition, most people, at least in the United States, save much less than ten percent. It’s no wonder spending other people’s money and going into debt is so alluring for many.

Even if wealth eventually arises through conscious, compounded saving, by the time we reach a level of net worth that qualifies us to fall into the category we have set as a goal for ourselves, we are too old to enjoy what we have set aside. Putting aside the noble, selfless acts of passing our assets to charitable causes and descendants, the point of accumulating money is not to have a large bank account; the purpose of saving is to do something with the money.

When we save, we are putting aside our desire to do something now for the chance of doing something more later. Those nurturing a superfrugal mindset argue you should always choose the latter. The problem with the future is it never arrives regardless of how long you wait. Even though there is always a place or time or dollar amount where you can draw the line and begin living your life, that line may never come.

I will freely admit that I am not particularly adept at focusing singularly on the future. I likely fall somewhere along the spectrum of forward-thinkers. While I am not overly concerned about the present and I do not need immediate satisfaction, I do have my doubts about the future. I am saving money for retirement, including putting money into accounts that can’t be touched without penalty until several decades pass, but there is a possibility I may not live long enough to reach that goal. I am sacrificing a part of my life — not only the selfish activities in which I’d like to participate but the good, charitable things I could be doing with that money now — for the chance of doing more later.

If I don’t have the opportunity to do more later later, I would have made many needless sacrifices.

There are no certainties, so how can anyone truly offer advice about how much someone should save for the future? Life is short, and it’s important to make the most of it while you have a chance. No one knows what tomorrow will bring, so we guess and we offer suggestions. Save ten percent of your income (a weak but popular rule of thumb), or save as much as possible, but don’t completely sacrifice your life now for your future.

With your finances in control or on the path to being in control, ensure you are making the most of the short time you have on this planet. The slow road to accumulating money is the road that most people will take, so enjoy the scenery. The future may never come, so don’t deny yourself all joys of experiencing life now, however you define these joys, in deference. If your approach is causing you to miss out on aspects of life that you find important and will later regret, you may be saving too much money.

The original version of this article, Is It Possible to Save Too Much Money?, is copyrighted by Consumerism Commentary.

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I’m pointing out a recent article featuring advice from Walter Updegrave, a senior editor of Money Magazine. Recently, he was asked to quantify the percentage of income that any individual should save in order for this particular action to be considered “financially responsible.” Normally, the advice I’ve seen suggests a rate somewhere between 10% and 20% of income, so I was expecting Updegrave’s advice to head in that direction.

Rather than providing a hard percentage, Updegrave took a more nuanced approach.

Well, as much as I’d like to be able to tell you to save 10%, 15% or whatever and you’ll be fine, it’s impossible for me to do that without knowing a whole lot more about you. The percentage of income that’s appropriate for you will depend on your income, age, the amount of money you’ve already saved, your employment prospects and, most important, how much you’re willing to forego immediate gratification for current and future financial security.

It is good to see writers admitting that personal finance advice is not one-size-fits-all rather than going for the knowledge-nugget. Knowledge-nuggets are like those chicken nuggets at that fast-food restaurant with the yellow double arch-shaped letter. They’re tasty, but not very healthy, and you get sick of them after about 25.

Every individual is surrounded by a unique situation, and that should be reflected in personal finance advice.

Tips on the other hand can be general enough to apply to a large swath of individuals. Updegrave answers the reader’s question as best as possible without knowing anything about the individual, but then leads into a few savings tips that are applicable to just about everyone: Start building an emergency fund (and here are 50 tips for building one), be serious about investing for retirement, and find additional ways to save such as automating your savings.

If nothing else, saving 10% of your income is a good start if you’re not saving anything, and saving 20% of your income is a good next step if you’re saving 10%.

3 steps to financial security: Save, save, save, Walter Updegrave, Money Magazine, April 30, 2009

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If you have been affected by the recession, perhaps by losing a source of income, you may not want to hear suggestions for turning a bad situation into an opportunity. In fact, the idea of turning challenges around for your own benefit is in line with the annoying soundbites that productivity gurus sell. But I firmly believe that it’s best not to let things happen around you without reacting and adjusting. Here are some ideas to keep you moving while the world is slowing down.

1. Reassess your finances. If your income has changed, you may find yourself increasing debt at a faster rate or worse. I suggest going back to the beginning by following the map set forth in Take Control of Your Finances. This involves reevaluating your goals, your income, your expenses, and organizing your savings and investments.

2. Consider your primary and secondary skills. If you are out of work, and particularly if you have experienced difficulty finding a new place of employment, it is easy to feel your skills are not appreciated. Perhaps this is a good opportunity think creatively about different ways to apply your skills or hone your other talents. In college, did you have a minor in a different area than your major? If you did, chances are you have marketable skills in some other activity. During my first two years of undergraduate studies, I had difficulty choosing my minor, switching from computer science to psychology. If necessary, I would enjoy pursuing either of these paths.

3. Turn your hobby into your own business. I have found that many people are reluctant to take the avocation they enjoy and turn it into a profitable endeavor. I can understand this; I work almost constantly these days between my day job and everything else I do. But if that day job were to disappear, there would be no question that I’d use this as an opportunity to ramp up my projects. I have already turned my hobby — blogging and building communities — into a business. Now my newer hobby is photography. I have tons to learn about this new hobby (and I still have tons to learn about personal finance), but if blogging were my “day job,” I might have take on photography as a more serious hobby, and possibly turn that into a business of its own.

4. Go back to school. Modern educational technology has made it convenient to earn another degree. You can take classes online in the comfort of your own home or you can go on campus and hang out with the young co-educational students. Do not focus on the return on investment (ROI) for the funds you put into additional education. Learning a new skill or studying an interesting topic has intrinsic value that can’t be measured by a financial analyst.

5. Consider frugality. I admit I’m not a big fan of most frugality tips out there. In the past, many frugal tips have required a lot of effort and therefore remained under the domain of people without other timely responsibilities. But online coupon websites and other modern technologies take a lot of work out of frugality, so this now is an option for more people. Frugality means different things to different people, so today’s recession provides an opportunity to explore and decide on where you can intelligently save money.

Check out this extensive list of frugal tips from Being Frugal.

6. Eliminate your credit card debt. Credit card interest is expensive. You don’t have to be frugal to realize that interest is in most cases an unnecessary expense if you spend less than you earn. If you’re out of a job, this can be difficult, particularly if you do not have enough income to cover the minimum payments. Call your credit card companies to see if they can assist you by lowering or forgoing your payments until your income returns. If not, perhaps they will lower your interest rate. It never hurts to ask, and ask a supervisor if the first customer service representative won’t provide satisfaction.

If you do have income, start the debt avalanche, the least expensive, quickest, and most efficient way to get out of debt.

7. Eliminate meat from your diet. I love a perfectly cooked, rare filet mignon. But meat, even steak from the grocery store, is expensive.

If you drop red meat, poultry and fish from your diet, you’ll find plant proteins cheaper than the equivalent amount of animal protein. The cheapest cuts of beef, such as ground round, average $3 per pound in U.S. cities (lean and extra lean); boneless chicken breasts cost $3.40 a pound; and canned tuna is about $2 per pound. Contrast that with dried beans and lentils at less than $1 a pound and rice well below $1 per pound… Even tofu, the chicken of the vegetarian world, is usually well under $2 a pound. Go Vegetarian to Save Money, MSN Money

Healthy diets help you save money later in life with fewer visits to the doctor.

8. Sell your extra stuff. The great thing about eBay is its enormous reach, bringing people from anywhere interested in owning anything closer together. There’s a market for practically anything transferable on the auction website. Sell your clothes, your furniture, your electronics, your art, your classic video games, and your baseball card collection gathering dust in the attic. Don’t expect to consistently make a lot of money selling your old items on eBay unless you own something truly rare. One drawback of the aforementioned reach is that lots of people are selling the same things you are.

But if you can create something original and use eBay to sell that product, you may be in a good position to earn a consistent income.

What would you add? How are you surviving this economic recession?

The original version of this article, Eight Tips for Living Through a Recession, is copyrighted by Consumerism Commentary.

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Being prepared for financial emergencies is a primary step on the path to creating and maintaining solid footing, but as with other good things, too much of a positive can be negative. Every individual’s or family’s situation is unique, so it’s difficult to prescribe a hard and fast rule about the right size of an emergency fund that applies to everyone. Having three to six months’ worth of expensive in accessible cash is a good start, but many people will find that this will be too much or not enough.

I’ve suggested taking a holistic view by breaking your emergency fund into five (six) levels including cash on hand, a high-yield savings account, sellable investments, available credit, friends and family, and possibly readiness to reduce expenses. These options range from stagnant to flexible in terms of what they allow you to do with your money. For example, if you keep a small amount of cash ready under your mattress to use if you can’t access your bank accounts, that money loses purchasing power due to inflation the longer it stays outside the financial system. High-yield savings account may match or exceed inflation and investments may beat inflation over time. Access to credit allows you to invest more while still providing an option to help during an emergency, and friends and family can occasionally be tapped if necessary without risking your credit (just your reputation).

As we travel further down the list, more of your money is freed to work for you, invested for the future. If you are comfortable with the latter options, and if you are experienced with credit and not in danger of falling into debt, it’s better to tilt your emergency plan in that direction. I wouldn’t recommend keeping more than one year’s worth of expenses in a savings account narrowly beating inflation if at all, and the more other options are available, like credit and other somewhat liquid investments, a tiered approach will allow you to have your assets work for you.

The original version of this article, Can an Emergency Fund Be Too Big?, is copyrighted by Consumerism Commentary.

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This is timely information consider I wrote this morning about establishing a small emergency fund before taking on the task of accelerating debt payoff. Last week, Liz Pulliam Weston from MSN Money provided details from a summary of different savings studies over the past few years. I discovered this article today.

According to the survey results, having just $500 in the bank corresponded to a large difference in stress, quality of sleep, quality of health, and productivity. The study also shows that income level has nothing to do with this. In both low and moderate income households, the average income for households who have saved at least $500 were about the same as the income for those who had not.

Better health and greater productivity save money in the long run. Even if it doesn’t sound like a good idea to start an emergency fund before directing all of your excess income towards paying off debt on the surface thanks to evaporating savings interest rates, there are many ways a small cash cushion can pay off in the long run.

Want to sleep better? Save $500, Liz Pulliam Weston, MSN Money, March 12, 2009.
Understanding the Emergency Savings Needs of Low and Moderate Income Households [pdf], Stephen Brobeck, Consumerism Federation of America, November 2008.

The original version of this article, New Study Outlines Importance of an Emergency Fund, is copyrighted by Consumerism Commentary.

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In 2008, millions of people received checks or direct deposits from the government in an effort to stimulate the economy. The extra cash certainly helped many families and individuals, who, like the banks that received TARP funds later in the year, cushioned their bank accounts and paid off debt. Some used the found money to contribute directly to the economy, but not enough people purchased products and services to prevent the global economy from collapsing. It’s usually argued that one of the strongest aspects of distributing checks of this type to the public is to boost confidence in both the market and those in power.

The economy is now worse than it was when the 2008 economic stimulus payments were sent out. The American Recovery and Reinvestment Act of 2009 was recently created to continue the attempts to boost the economy. This time, however, there will be no stimulus checks. Instead there is a new tax credit, the “Making Work Pay” credit, which will allow employees to keep more of the money they receive in each paycheck.

Starting in April, employers will adjust withholding automatically for qualified workers. This will result in $44 additional take-home pay after taxes for individuals, and $89 additional for those who selected “married” on the W-4 employee withholding form. Economists believe this small increase in pay will stimulate the economy more effectively than the equivalent lump sum payment of $400 ($800 for married couples). A lump sum payment is more likely to be saved, used to pay off debt, or spent all in the same place, while a little extra in each paycheck will help families incorporate the money into regular spending, like dining out in restaurants or buying groceries. This helps taxpayers circulate the money in the community rather than hoarding it in a bank account.

But lump sum payments are often better for the individual, even if they don’t stimulate the broader economy as effectively. So here are eight ways you can create your own stimulus check by turning the small weekly or biweekly increase into a larger benefit or by finding other income or savings that can be effectively used to boost your finances.

1. Save the Making Work Pay credit. If you receive a paycheck biweekly, you will be taking home $20 or $39 extra each time. Set up direct deposit to automatically transfer that amount into a high-yield savings account like FNBO Direct. With the interest you earn, by the end of the year you’ll have more than the $400 (single) or $800 (married).

2. Work extra hours. If your boss allows you (mine doesn’t) and if you get paid extra for doing so (I wouldn’t), spend an extra hour a day in the office. Assuming a salary of $40,000 or $20 per hour, and a benefit of time-and-a-half for working beyond 40 hours a week, you could earn an extra $7,500 by working one extra hour a day for one year.

3. Turn your hobby into a business. If you like creating and assembling furniture, building computers, knitting, or making jewelery, consider getting serious about selling your products. These could be things you don’t need to make yourself, as well. A coworker of mine recently started hosting jewelery parties, where she enlists her friends to host their own jewelery parties. I believe it’s some kind of multilevel marketing scheme, but it works for her. With this kind of side job, she doesn’t have to make her own jewelery; she just receives a percentage of what is sold as well as free jewelery.

4. Become a tutor. You can leverage your knowledge by offering to share it with others, perhaps middle school or high school students, for a fee. You only need a few students a week to earn a couple hundred dollars a month. Science and mathematics are always in demand, but you can do well if you have skill with musical instruments, test taking, or a foreign languages.

5. Get your bar tending license. A former coworker found that my company wasn’t providing her with enough income, so she started working in a friendly neighborhood bar on the weekend and one day during the week. With tips, she was able to earn several hundred dollars a night.

6. Sell your stuff. You must have unnecessary items around the house. eBay and the Amazon.com Marketplace come in handy here. Thanks to the websites’ reach, you can find buyers for almost everything. Old books, DVDs, electronics equipment, and games are all items you may no longer want but might be in demand.

7. Cut back your spending. Yes, this is typical financial advice you can find anywhere, good for any economic condition. But if you’re financially struggling right now, it’s time to take this idea seriously. I don’t have to tell you many of the easy ways to quickly reduce your spending, such as reducing your ECRD Factor, cutting back your cable bill, switching to compact fluorescent light bulbs, and reducing your energy consumption.

8. Request your cash back rewards. It’s getting much more difficult to take advantage of credit card offers. Credit card companies are dropping rewards programs, raising interest rates, and lowering credit limits. But if you do use a cash back credit card, claim your rewards. I request a check about once a year for a few hundred dollars from one card, while the business card automatically credits my account once a year. These payments provide me with a “stimulus” that I don’t take into account until I realize it’s time to receive the reward.

What else can you do to find extra money to stimulate your own personal economy?

The original version of this article, 8 Ways to Create Your Own Stimulus Check, is copyrighted by Consumerism Commentary.

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If you’ve been paying attention lately, you might have heard that throughout the economic recession, Americans have been saving more of their income. Some economists worry that saving, while good for the individual, can be harmful to the economy as a whole. This is commonly called, “the paradox of thrift,” a theory developed by John Maynard Keynes, a popular economist who in the early 20th century saw spending as the basis of an economy.

Keynes looks at a recession as a vicious cycle, illustrated here:

1. Less money is being spent by consumers.
2. Demand for products and services decreases.
3. Businesses reduce production and eliminate jobs to meet demand.
4. Unemployment increases, resulting in less income for saving or spending.
5. Rinse and repeat.

In this model, it is theorized that saving more money can eventually result in having less money to save on an aggregate level. The only thing that can break this cycle is something external. In our case, it is the government. The first treatment was “stimulus,” payments given to taxpayers (from current or future tax receipts) to help “stimulate” the economy.

The reaction, when this didn’t work, was that this wasn’t enough to break the cycle, and more stimulus was needed to noticeably affect the economy. The government decided to go directly to businesses, providing them with the capital needed to finance shovel-ready projects, hire more employees, and keep aggregate income up so consumers would feel that their money is better spent spent.

The easiest argument against the validity of the paradox of thrift is that, for the most part, there is no such thing as saving money. Money is either spent now or it is spent later. Another possibility is that it is invested now and transferred to a business, and the business either spends it now or spends it later. When you decide to spend money later, in almost all cases, you put the money into a bank account, which provides the bank with more funds with which to provide loans to businesses now.

As long as banks to continue to loan out money, the economy doesn’t decline. But as we see now, thanks to the “credit crunch” (which we haven’t been hearing about as much recently), that’s not happening.

In short, it’s not consumer spending or saving, but the financial industry’s refusal to lend money to credit-worthy businesses that is keeping us amidst the recession.

The paradox of thrift, the idea that saving more money was bad for the economy, was invented when personal rates of saving were much higher and consumer credit was all but nonexistent. At this time in American history, “saving money” meant keeping cash under a mattress outside of the banking system. Perhaps the paradox of thrift was a reality at that time, but despite its popularity in the news recently, it probably no longer applies to America’s modern economy. Many economists now agree that this aspect of Keynesian economics has seen better days.

Does the government need to step in to break the cycle, like Keynes suggested? Probably, but it needs to take the right actions. Helping tax payers with $400 over two years is not enough because it doesn’t have a large enough effect for the majority of Americans in order to restore consumer confidence.

The economy is broken at the lending level, and that’s where the government should focus. Banks need to lend money to credit-worthy customers. If they refuse, the government can step in, and they have a number of options, with approaches ranging from near-socialism to capitalism, including:

• buying the banks, nationalizing the industry, and changing the way banks do business
• buying controlling shares in the banks and making management decisions to lend (responsibly)
• investing in the banks with the requirement that the money be used to increase lending
• providing tax incentives for institutions that decide to increase responsible lending
• creating a federal bank that accepts deposits and lends its funds to compete directly with private banks

Continue to save money and spend less than you earn. It’s not a patriotic duty to spend it on products and services you don’t need, despite what you might hear. There is no need to sacrifice your future financial well-being for the sake of the greater good. It wouldn’t work, anyway. The economy will be sorted out with or without the house you buy now rather than a year from now.

Some interesting reading on the paradox of thrift: Paradox of thrift on Wikipedia, Frugal living is bad for the economy from Associated Press, Consumers Don’t Cause Recessions from the Mises Institute, and The Paradox of Thrift: RIP from Cato Journal.

The original version of this article, The Paradox of The Paradox of Thrift, is copyrighted by Consumerism Commentary.

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Having an emergency fund, money set in an easily accessible location like a savings account earmarked for certain situations, is one of the first steps to being financially secure. This is common advice, particularly among financial advisers. Ideally, one wouldn’t tap the emergency fund at all. That sacrifices some earning power because even high-yield savings accounts lose ground to inflation. In return for that sacrifice comes some stability. With an emergency fund in savings rather than the stock market, you don’t have to worry about a potential loss if you need the money in a down market.

If you can plan in advance and protect yourself, you can help reduce the sting of an emergency.

There is, however, a difference in opinion about which circumstances qualify as emergencies. The biggest emergencies would arise with any event that eliminates an income source for an extended period of time.

Legitimate emergencies

Sudden job loss. For many people, the primary source of income, and thus the ability to pay for expenses, is a job. Most people in the United States trade their time and effort for a paycheck, relying on a company, small or large, to accept that time and effort and provide remuneration. When job loss is sudden, the primary source of income could disappear just as quickly. Very few of us are “entitled” to a severance bonus, providing a cushion to ease the fall for a period of time, so we must plan accordingly.

It’s dangerous to place your ability to earn income in a sole decision maker focused on a company’s bottom line. As an individual, we each must take our income into our own hands as much as possible, and that includes always being prepared for job loss. Part of that preparation involves having an emergency fund available, keeping a current resume, networking with colleagues, seeking recommendations, and studying the industry.

Even with preparation, the loss of a job can be damaging to your finances, and the effect can last long after you find your next job.

Death or medical emergency of a family member. While life insurance can help deal financially with death, it doesn’t cover everything. There is an entire industry designed around planning for death, but an emergency fund will always be necessary. As relatives age or gradually experience a decline in health, you have time to develop expectations and prepare financially, but unfortunately, death is not always this graceful. Emergency funds can be used to help pay for these hopefully infrequent events, from flights to visit distant family members to final arrangements.

Acts of nature. In New Orleans prior to Hurricane Katrina, residents wary about hurricane damage to their homes were encouraged to buy insurance policies covering wind and rain damage. Many insurance policies provided no relief following Katrina because the damage done to homes was determined to be due to flooding. According to USA Today, only one-third of homes carried federal insurance which included protection from flood damage. Many residence thought they were covered in the event of a hurricane, but the insurance companies disagreed.

A typical emergency fund with three to six months’ worth of expenses may not have solved all problems in this situation, but it could have helped. Natural disasters are not always as damaging as Hurricane Katrina, and planning for total destruction will in most cases be excessive, but when designing an emergency fund, it’s helpful to factor in what is likely for your location.

Car accidents. Auto insurance is generally helpful when it comes to covering for damage due to car accidents, whether caused by you or another party. Often, insurance won’t cover everything you need. Your emergency fund may need to at least cover your deductibles, but also fill in any gaps left after payments arrive. The fund can help pay for a new car if needed.

Surprise tax bills. While review and planning should prevent this occurring, occasionally the IRS finds something overlooked. It happens to even the most diligent. The IRS will usually allow a payment plan to extend repayments over time for an additional fee, but an emergency fund can help cover the liability.

Delay in income. I used to work for a non-profit which, before I had started working there, had a nasty reputation of not keeping enough funds in their payroll account to cover the paychecks for the ten or so on staff. I’ve had friends working for start-up internet-based companies who were asked to forgo paychecks for a time period for the good of the company in its initial building stages. With an emergency fund with three to six months’ expenses, you won’t be in danger of failing to cover your bills. Once the paychecks catch up, you will be able to re-establish the emergency fund.

If delays in income extend longer than six months — personally, I would only accept this from an employer for a month at most, if at all — it is time to find a new job, if possible.

Sudden relocation. Usually, if your employer determines that your job should move from New York City to Ogden, Utah, they will compensate you for your relocation. That isn’t always the case, and your option may be to forgo opportunities within your company and business by quitting your job or accepting the relocation and the accompanying expenses. The decision is personal, but it’s better to be prepared to face the consequences.

What does not qualify as an emergency?

I’ve heard of people using emergency funds for expenses that are clearly not emergencies. While everyone’s definition of an emergency is different, if you want to make the best use of your money, I would suggest not tapping money earmarked for emergencies for these expenses. That said, you can save separately for these expenses.

Vacation. It’s great to get away from your daily responsibilities for a time, but even if your therapist recommends an immediate vacation, you shouldn’t dip into the money set aside to cover emergencies.

A buying “opportunity” in the stock market or real estate. If you’re interested in timing the market or want to buy a house for the fun of it, save separately for the occasion. Most people overestimate their ability to time the market and could find themselves on the losing end of an investment at the moment they need the cash for a true emergency.

Out-of-town visitors. You just heard your friend from college would be in town for a weekend, and she’s suggested getting together for an evening out. If you don’t have extra cash flow at the moment, you might want to suggest a frugal option. Don’t feel you have to impress her by going to the fanciest restaurants and clubs, particularly if you have only your emergency fund available.

Mid-life crises. Recently divorced and quickly aging? It’s time to buy a convertible sports car. That seems to be the accepted path, but it can be a dangerous road to travel, particularly if your ex-wife has half or more of your money. Don’t dip into your emergency fund to buy a new sports car just because you want to feel young again. It may, however, be time to get together with an old college friend for an evening out.

Keeping up with the Joneses. The Joneses buy what they buy because they have no problem with debt. If you’re conscious about spending, you’ll never keep up with the Joneses in the accumulation marathon, nor should you feel the need. They’ve added a sun room and an in-ground swimming pool, but for all you know, they could be paying for it for years. Resist the temptation to match or exceed appearances, whether with debt or by tapping the emergency fund.

What do you think?

I’m sure there are many emergencies and an infinite number of non-emergencies I’ve neglected to mention. I will also bet the total of my emergency fund that some readers will disagree with some of my classifications. (Gambling: not an emergency; Paying your bookie: possibly an emergency.) Please share your thoughts.

Photo credits: au_tiger01, daveynin, and rayced

The original version of this article, Your Emergency Fund: What Qualifies as an Emergency?, is copyrighted by Consumerism Commentary.

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Earlier today, I asked via Twitter how much everyone has in their emergency fund in relation to their monthly expenses. Here are some of the responses. (I assumed if the message wasn’t sent privately and if the twitter account wasn’t protected that I could re-post the source of the responses.)

• nodebtplan: 3 months of expenses in our emergency fund
• takingcharge: currently only enough to get me through a month or less, but working on saving enough for 3-6 months
• taliaishere: 3 months in the emergency fund, but am working towards 6 months-that would be much more comfortable
• Gblogger: Depends on what I count — we stopped segregating specific emergency funds a while back. But at least 6-10 mos.
• dreamscostmoney: 3-5. It used to be 3, but then I decreased my monthly expenses, so it’s probably closer to 4 or 5.
• BurgBarbL: I have about 1.5 months’ worth of expenses in my emergency fund.
• Private: In my emergency fund? One. Not great, I know. But with my new salary, I’m on a plan to make that three.
• SunFinancial: I don’t have a dedicated emergency fund. All are accumulated in one savings account.
• bargainr: 9 months

Among these responses, the average (while taking the low end of anyone who responded with a range) is about 3.5 months. Not bad! I have about 3 months’ worth of expenses in my account called “Emergency Fund,” but I have about an additional four times that amount across a variety of savings accounts.

If you’re interested in participated in occasional polls, follow me on Twitter. For those who don’t know, Twitter is a “social media” tool that allows you to broadcast and receive quick and short text updates. I promise not to send spam or to bombard you with “new post” updates. Mighty Bargain Hunter has a list of 118 personal finance bloggers who use Twitter, but many only provide automated “new post” notifications, duplicating an RSS feed.

The original version of this article, Twitter Poll: How Much Do You Have in Your Emergency Fund?, is copyrighted by Consumerism Commentary.

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One of the most popular pieces of financial advice is the importance of establishing an emergency fund, money that can be accessed to assist with life unexpected problems, like medical emergencies or the loss of a job. Financial advisers like Suze Orman suggest that most people have ready three to six months’ worth of expenses in “liquid” savings — easily accessed — ready to go to help cover a rainy day.

I’ve suggested breaking your emergency fund into five components, but it’s the first two components that relate directly to the nearly universal definition of the emergency fund. Having cash on hand and in liquid bank accounts will help you deal with a sudden loss of income or a significant financial need, but money kept in this manner loses value over time due to inflation. Any money kept in the emergency fund is not maximizing earning potential as other investments could be. The goal is to find the right balance between allowing your savings to earn money though compound interest or appreciation and forgoing performance for accessibility.

How do you determine how much to keep accessible? As I mentioned, many experts suggest having three to six months’ worth of expenses ready to go. That’s a wide range and not very helpful. For example, for me, that could be anywhere from $12,000 to $24,000. Here are some questions to help you determine a more personalized amount.

Start with your monthly expenses. If you already track your income and expenses somewhat accurately with software like Quicken then you have your starting point. Keep in mind that your monthly expenses for this purpose include your spending plus your debt payments. Include your electric bill, even if you pay by credit card. If you have outstanding debt, include your monthly payments for your credit card, mortgage, student loans, or any other service that applies.

Look at the stability of your income. What would you do if you lost your job? Are your skills in high demand? If so, you may find a replacement for your income quite quickly. If this is the case, you have an argument for keeping the balance of your emergency fund on the shallow end. While your personality will determine how much risk you’re willing to take, and you are taking more risk by keeping a small emergency fund. Even though you may perceive your ability to find a new job earning the same amount will allow you to find you a new job within one month, it would be beneficial to assume that forces possibly beyond your control will prevent you from doing so.

Keep in mind that job markets cycle, so you may need to reevaluate your situation from time to time. Labor demand and supply change. If you established the “rules” for your emergency fund in 1999 when high tech jobs were in high demand, if you had lost your job in 2002 you may had been out of work for longer than you expected.

How far are you willing to go? If you might have difficulty finding a job to replace your income, are you willing to consider alternatives? Some people are willing to do whatever it takes to make ends meet, even if it means taking a job for which they are overqualified. If your industry suddenly becomes unfavorable, will you work as a waiter for minimum wage while determining the next course of action? If you need to devote all your waking hours to find a new job, then you’ll need a larger stash than if you can split your time between the job hunt and a temporary job.

How much would it cost to move? I would say that an unexpected necessary move would be a strong use for an emergency fund. If your job is requiring you to move to a new town and they are willing to pay for your expenses, you do not need to worry about this, but there are many other reasons why you might need to find residence in a new town. For example, perhaps a family member could become ill and you need to move closer to provide care and support. Consider your variable moving expenses as well as any expenses you might have while you settle in your new location. These should be covered by your emergency fund. If moving requires a new job, add more to your emergency fund to cover your expenses.

Are you willing to reduce your expenses? Desperate times call for acts of desperation. Chances are you have expenses you can eliminate if you are out of work. If you’re willing to say goodbye to high-definition cable television, the wine of the month club membership, and the gardener, feel free to leave these expenses out of your calculations when determining your ultimate emergency fund goal. But only do so if you’re truly willing to give up these luxuries.

It is rare to hear someone say, “I had just the right amount in my emergency fund.” Almost always you will have too much or too little, but those who have too little drive the most popular stories. It’s next to impossible to foresee all possible situations and plan your emergency fund perfectly. It’s best to err on the side of caution even if that means you’ll have less available for investing. Accept the fact you won’t get it exactly right and do the best you can.

The savings account I label “Emergency Fund” has about two months’ worth of expenses, but it’s held at ING Direct. If I needed this money in cash, the quickest way to get the money would be to to transfer the amount to a local bank account and withdraw the funds. This process would take a several days, so I have in place a multi-level emergency plan which consists of cash on hand, money in ING Direct’s account, more money in several high-yield savings accounts, and, if necessary, I could sell investments (and draw a tax bill) or use available credit (and risk the need to pay interest expenses).

The original version of this article, The Right Size for Your Emergency Fund, is copyrighted by Consumerism Commentary.

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One of the first steps to cleaning up one’s financial situation before embarking on the journey to become financially independent is the establishment of an emergency fund. An emergency fund, in its most basic form, is an accessible savings account where you keep cash for true emergencies, like the loss of a job or a medical emergency. Financial advisers and writers often suggest that emergency funds should contain enough cash to cover all expenses in a three to six month period.

Beyond the basics, I suggest at least five separate components to an complete emergency plan. Getting to that point presents challenges for many people. When one is starting out, it can be difficult to assemble the basis for eventual financial freedom.

Here are 50 tips for the beginner who may be pressed for money.

1. Open a high-yield online savings account with as little as one dollar.
2. Sign up for direct deposit.
3. Empty your pocket change into a jar every night.
4. Bring your coin jar to the bank every month.
5. Add to your jar every time you swear.
6. Have a garage sale.
7. Whenever you purchase groceries with a coupon, deposit your savings into the bank.
8. Downgrade your telephone service.
9. Bring your own lunch to the office.
10. Ask for a raise (with substantiation).
11. Drink soda rather than alcohol when you’re dining out.
12. Drink water rather than soda when you’re dining out.
13. Switch to store-brand food items.
14. Switch to generic medication.
15. Cut back or eliminate your addiction to smoking.
16. Be aware of your ECRD Factor.
17. Create an automate deposit to your savings account.
18. Divert your raise into the bank
19. Don’t consider your emergency fund part of your spending money and keep it hidden.
20. Celebrate America Saves Week every week
21. Tutor a young student in a subject you know.
22. Get a part-time job at your favorite book store or coffee shop.
23. Use a cash back rewards credit card and deposit your rebates directly into your emergency fund.
24. Call the cable company and cancel your service (or agree to a better deal).
25. Save gas by not driving faster than 65 miles per hour.
26. Stop using credit cards if you pay interest.
27. Cancel your Netflix subscription.
28. Fire your gardener and do the work yourself.
29. Visit the library rather than your local bookstore.
30. Stock up on non-perishable groceries when they are on sale.
31. Consolidate your student loans.
32. Cancel magazine subscriptions.
33. Reuse any items you can rather than buying new, and pocket the difference in your emergency fund.
34. Delay vacations until your emergency fund is complete.
35. Sign up for online bill payment if your bank offers the service for free.
36. Shop around to ensure all your your financial accounts do not charge you extraneous fees.
37. Always know how much you have in the bank so your accounts will never be overdrawn.
38. Consider switching your land line phone service to an internet (voice over IP/VOIP) service.
39. Use public transportation rather than driving when possible.
40. Work a few extra hours at your day job.
41. Call your insurance provider and ask for an updated quote.
42. Shop around for a new insurance provider.
43. Troll the web for abandoned and unclaimed property owed to you.
44. Negotiate in any retail environment. The more you try, the less you’ll spend (and the more you can save for emergencies).
45. If you travel, join AAA; the discounts will often pay for the membership fee.
46. Don’t be an early adopter of new technology.
47. Cancel your gym membership.
48. Check your three free credit reports each year from annualcreditreport.com, the official website, for accuracy.
49. Consider adopting a frugal philosophy, at least until the emergency fund is in place.
50. While paying attention to small, repetitive expenses, don’t ignore larger decisions like your car, house, and wedding. With smart choices on big-ticket items, you could fully fund an emergency account with the savings.

With a goal to be financially independent, the first step is securing a cash cushion, accessible in emergencies. During this funding phase, it may be beneficial to make sacrifices that in other situations you would not make. A slight decrease in quality of life in the short term will likely outweigh long-term financial devastation when a future emergency arises.

The original version of this article, 50 Tips to Help Establish Your Emergency Fund, is copyrighted by Consumerism Commentary.

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A few weeks ago, I previewed the SmartyPig savings account, an interesting way to collaboratively save money for goals while earning interest on that money. I like the ease of sharing goals with friends and family and allowing them to contribute, but the redemption options were limited.

By design, SmartyPig prefers that once you reach your goal, you redeem your principal plus interest in the form of a pre-paid debit card or a gift card for a participating retailer. If you want to redeem your funds in a more traditional, less consumable manner, you’d have to call customer service and pay a $25 fee.

SmartyPig announced today that they are eliminating the $25 fee immediately, and soon, those withdrawing their funds after reaching their goals will also have the option of an ACH transfer. I applaud SmartyPig for listening to its customers. Here’s the full email:

I had a very interesting conversation last week. It was with a young lady saving for a down payment on her first home with her fiancée. They want every penny they can scrape together funding that goal – especially the presents she is anticipating receiving when she finishes up graduate school later this spring.

They thought they had found the perfect way to reach this goal faster when they stumbled upon SmartyPig, she told me. They were really excited about the public contribution piece and the social nature of SmartyPig. They thought the widget would draw attention and letting friends and family members know about their goal would keep them focused. Just one problem, she told me: they couldn’t use the SmartyPig debit card to make that down payment.

I was told we were alienating a huge group of people – people with bigger goals – by not offering a free way to get your savings and interest back where it came from. When I suggested that SmartyPig was created more for smaller, short-term goals she basically told me it should be for everyone who wants to share in their experience of saving. The next day, when my business partner, Mike Ferrari, and I spoke to a mother who is using SmartyPig to not only teach her 10- and 12-year-old sons how to save “in a cool way,” but is using SmartyPig to help them save up for their cars when they turn 16 and made mention that we shouldn’t punish people for having bigger goals, we hung up the phone and decided she was right: for everything else there isn’t always MasterCard.

These were not isolated incidents of “push back” regarding our process, mind you, but they were enough to get The SmartyPig Team around the table to make the quick decision that from here on out there would be no $25 fee for not selecting one of our two redemption options. In fact the fee will disappear entirely – effective immediately.

In the very near future this process will be fully automated. For now, customers who want to close a goal and receive their savings plus interest in the form of a check simply must call customer service when they have reached their goal – just like now, only no fee.

When our site update is complete, the customer will have a third option when he or she has reached their goal: an ACH transaction back to their checking or saving account. Checks will no longer be available. For our customers’ security, funds will not be available for transfer until 10 business days after their initial deposit has cleared, as long as there are no other pending transactions (such as a gift heading your way). After this initial hold has expired, funds that have been on deposit may be withdrawn 5 business days after the most recent transaction has cleared.

We want our customers to know that we can adapt quickly when it is important to them that we do so, like we did when we changed our policy regarding public contributions. SmartyPig remains all about having a goal, funding that goal, having friends and family help, and, in the end, getting more money for your money. However, we learned that in some cases a customer’s goal doesn’t always fit in our model. Well, we want to be the place for anyone who wants to sensibly save for a goal, so we had to tweak the model.

The original version of this article, SmartyPig Smartly Drops $25 Redemption Fee, is copyrighted by Consumerism Commentary.

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Jonathan Clements, a columnist for the Wall Street Journal, is leaving journalism. He published his last article on Wednesday, a reflection on fourteen years at the Journal and 26 years writing professionally about money.

In the article, he looks at the essence of saving and investing. Why bother? A number of visitors touched on these points on yesterday’s post on Consumerism Commentary about frugality and compromises. Here’s what Jonathan Clements has to offer for his final word to readers.

If you have money, you don’t have to worry about it. You don’t have to worry about it, but many people do. Growing your money requires paying attention to your finances, and when you’re aware of problems, you’re more likely to worry about it. But if you’re earning enough from your pay check or investments to cover your expenses, save, and invest for the future, then you have the flexibility to turn your attention to other things.

Money can give you the freedom to pursue your passions. This is what inspires me to continue being vigilant about my own finances. There have always been a number of things I’ve passionate about, including music, technology, building communities, and inspiring other people whenever possible. For a long time I was able to combine these passions, but the real world was calling and I needed to stop going deeper into debt. Once I’m financially independent, no longer needing to trade my time to earn a living, I can pursue these activities further.

Money can buy you time with friends and family. For most people, this probably falls under the “passions” category. Jonathan writes about the ability to spend when socializing with people who make you happy, but even those who are struggling financially can find happiness through making time for those who are important. It doesn’t take expensive dinners and traveling to find happiness.

Clements ends his final article with a reminder that a rich life isn’t always about the money.

I’ve cited Jonathan Clements‘ articles a number of times on Consumerism Commentary, and I’ve almost always agreed with his points of view. Thanks for the excellent articles over the years.

The original version of this article, Jonathan Clements Exits: The Essence of Money, is copyrighted by Consumerism Commentary.

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Haven’t you heard? This week is America Saves Week. From February 24 through March 2, a coalition of non-profit, corporate, and government groups are pushing a media campaign to encourage savings in various forms, from increasing money deposited into bank accounts to finding bargains and saving money on purchases. It’s a noble goal.

Building wealth starts when you set a goal and make a plan to reach that goal. Whatever goal you choose — whether it’s buying a car, buying a house, or getting out from under your debts — learn about proven savings strategies and get simple tips on the best ways to save.

The organization is targeting certain minorities or special interest groups with special sub-campaigns, too, such as Black America Saves, Hispanic America Saves, Military Saves, and Youth Saves.

For the rest of us, the main America Saves website offers suggestions for increasing savings and decreasing expenses.

Get Out of Debt

The first step in getting out of debt is to stop borrowing. To do that, you have to stop spending more than you earn. So, make a budget and cut out any expenses you can. It may help to cut up your credit cards or lock them away in a safe place… If your debts are too large, you may want to consider bankruptcy. Bankruptcy can give you a fresh start, but it is a serious step that can make it harder to get credit for years after you declare bankruptcy.

Savings and Investments

* Cut spending painlessly by finding small savings that add up to big savings over time, like The ECRD Factor.
* Comparison shop for necessary purchases.
* Restrain spending for birthdays and holidays.
* Automate your savings.
* Put your loose change into a high-yield savings account.
* Take advantage of employer-matching retirement plans if available.
* Build an emergency fund.

My bonus was deposited into my bank account this morning. I plan on celebrating America Saves Week by putting a large portion of the newly-found cash towards paying down my student loan.

The original version of this article, Celebrate “America Saves Week” by Increasing Savings and Decreasing Expenses, is copyrighted by Consumerism Commentary.

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The most effective emergency fund, for use in the event of a job loss or unexpected major expense, is actually a combination of several types of investments. You should be prepared with a small amount of physical cash to hold you over until you can get money from a bank, highly liquid investments like a high-yield savings account, a Roth IRA (if you qualify) in which your contributions can be withdrawn penalty-free and tax-free, and possibly credit access.

NZbird wrote to suggest an interesting addition to an emergency food: a stocked pantry. By stocking up on non-perishable food items, you will leave more of your money available for use in the event of an emergency.

Keep your food pantry WELL STOCKED. I mean food is an essential right. And if you have kids you don’t want them stressing out because the basics like food aren’t there. So stock up your pantry real good with all the ingredients for meals. I try to keep around 6 months supply on hand. My husband use to laugh at me when I started doing it, but you know it introduced a discipline into our grocery shopping that wasn’t there before… The kids always knew the ingredients were in the cupboard for lunches, breakfast, and any snacks they wanted to make. I believe it’s that feeling of security and hope for the future that must be maintained for the sake of the children in times of job loss.

At first, the thought of stocking up on food seemed more like preparation for a pandemic, but the main point is that if your income is suddenly grounded, you won’t have to worry about spending your emergency fund for food and will have more available for rent or mortgage payments and electricity bills.

Thanks for the suggestion, NZbird!

The original version of this article, Your Food Pantry: An Essential Part of Your Emergency Fund, is copyrighted by Consumerism Commentary.

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Right now, I’m listening to the album, Raising Sand, by Robert Plant and Alison Krauss, released last year. Robert Plant will be 60 years old in August. I imagine he’s not thinking about retirement and we’ll continue to hear new music from him until he finally keels over. Unless you are one of the few who truly love the work they do, by age 55 chances are you’re planning the finer details of your retirement.

If you haven’t started saving money by 55, it’s going to be difficult to prepare for retirement by 65. According to Kiplinger’s calculations, in order to reach $1 million in ten years — and let’s not forget that a full retirement starting in 2018 is likely going to require much more than $1 million — it will take savings of almost $5,500 a month.

The more you have saved at 55, the easier it will be to reach millionaire status. A retirement nest egg of $50,000 reduces your monthly required savings to just under $5,000 for the next ten years. With $100,000 banked, you’ll need to devote only $4,253 each month, and with $200,000 you’ll need to put about $3,000 away.

The article has these suggestions for those 55 right now:

Take advantage of your peak earning years to top off your savings. Add an extra $5,000 in catch-up contributions to your 401(k) savings and an extra $1,000 to your IRA. As you near retirement, reallocate your portfolio to 70% stocks and 30% bonds. Estimate your retirement expenses and your projected income. If you’re coming up short, consider working a few more years.

I imagine most people aren’t going to want to hear that they’ll need to work longer in order to afford a comfortable retirement. If nothing else, young people should look at these figures and realize that it pays off to start thinking about retirement as soon as possible. It’s never too early.

The trick will always be balancing the needs and desires in the present with the potential needs and desires in the future. Saving for retirement implies that one will live long enough to reach a certain age — a goal that is not guaranteed. Saving as much as possible for retirement and delaying enjoyment of your life will be a waste if you die while doing so. Then again, if that happens, you won’t have the chance to dwell on your over-planning for long.

Realize that unless you plan on moving somewhere the cost of living is inexpensive, it’s going to take a heck of a lot of money to retire in a manner you’d like to be accustomed to. $1 million is a nice round number, but even the value of today’s $1 million wouldn’t get current retirees very far. Retire in the future, and $1 million is valued less, thanks to inflation. The younger you are, the higher you’ll need to set your goals.

Image credit: Pet Hawks
How to Make a Million at 55 [Kiplinger's Personal Finance]

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If you’re 45 years old right now and working, perhaps you’re starting to consider when and how you’d like to retire. Kiplinger’s Personal Finance magazine has some suggestions if retiring with $1 million is art of that game plan. Keep in mind the role inflation plays; $1 million is a good goal, but twenty years from now, it might enough to fund an entire retirement unless you find a way to reduce your expenses. You have to start somewhere, however.

With no savings at 45, you’ll need to accumulate $1,698 in your portfolio every month to meet this goal. If you have $50,000 set aside for retirement, your monthly contribution will be only $1,298. With $100,000, a 45 year old can likely start retirement with $1 million by saving $861 per month.

Obviously, reaching this goal is more difficult the later you start. If anything, this series should be a wake-up call to those with half-a-century until retirement; unfortunately, that’s not the target audience of this particular magazine.

Here are the strategies Kiplinger’s Personal Finance suggests for 35 year old, a category in which I will find myself in just a few short years:

* Contribute up to $15,500 in a 401(k). Thinking back to when I was 25, I was earning under $30,000 at a non-profit organization in New Jersey. Even if a 401(k) had been available, maximizing my contribution to the IRS limit was practically unthinkable. For a 45 year old in the middle of a career, this strategy may be more attainable. At the very least, if your company offers an employer matching contribution, take advantage of that.

A full contribution to a 401(k) requires almost $1,300 per month.

* Adjust your asset allocation to 80% stocks, 20% bonds. For my preferences, I think even at age 45 there should be less emphasis on bonds. With a large amount of time before retirement, and particularly before the end of retirement, it would be worthwhile to keep a riskier portfolio weighted heavier in stocks. Not only do your funds have to last until retirement, they have to last through retirement. While I stock market downturn towards the end of your career could derail your investments, I probably wouldn’t do much to add bonds into a retirement portfolio until there are 10 years or less until retirement.

* Don’t put your kids’ college costs ahead of retirement. I’ve discovered that this is a mantra favored by most financial advisers. While you or your kids can take out loans to help fund their education, you can’t take out loans to fund your retirement. Does more need to be said? Maybe. If the choice is between helping a relative fund an education they wouldn’t be able to receive otherwise and my own personal retirement luxury, I may opt to assist with the education. This will always be a personal decision.

Every time I’ve presented this Kiplinger series so far, with suggestions for 25 year olds and 35 year olds, commenters have pointed out the devastating effects inflation has on funds. I’ve covered this many times. In fact, forget about the official core inflation data presented by the government. The price of the things you’ll need to spend money on as you grow older, such as health care for instance, are going to increase at a much higher rate than 3%. Forget about calculations that tell you the future value of $1,000,000 based on 3% inflation. But don’t stop saving for retirement.

No, if your time horizon for retirement is decades in the future like mine, $1 million will most likely not be enough to support my necessary expenses. Aim higher if you can, but you have to start somewhere.

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How to Make a Million at 45

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Ah, hindsight.

Although I’m glad I got a 5.65% CD when I did, of course I wish I’d invested more and for a longer term than 6 months. But it’s not too late to still lock in a CD at an okay rate.

Or so I’d hoped. Recently, it seems the pickings are slim.

Emigrant Direct, whom I already bank with, is offering a whopping 3.50% APY for 6 months up through 10 years, and it’s hard for me to imagine why someone would want to lock that rate in at all, let alone for ten whole years. But a 4-something rate I’d take, for a little while at least. Just long enough to weather some downturn until I figure out my next steps.

Sovereign Bank has a 6-month CD at 4.25%, which I shut my browser window on in disgust before I realized it was one of the best rates out there.

I’m hesitant to go with this because my FNBO Direct savings account is still at 4.30%, though I can’t imagine that will last long in this environment. The best short-term CD rates I could find at Bankrate.com were 4.40% APY from Flagstar Bank for 1 year and 4.90% for 6 months at Countrywide with a $10,000 minimum.

I’ve been happy so far with my other Countrywide CD, so I opened two of their 6-month 4.90% CDs, one for my mother, since her high yield savings account’s rate has recently plummeted, and one for myself. I’m not feeling the lower-rate love so I’m hesitant to commit for longer than that, but 6 months of a decent rate works for me, especially as I watch the savings interest rates continue to decline.

I do plan to use some of the lower rates to my advantage, however. I’ve been keeping close watch over 30-year mortgage rates, and plan to refinance some of my mortgages if they creep low enough.

On my primary residence, I’ve got a 7-1 ARM mortgage with a nice 5.25% rate, but if I’m still living here in 2011, the rate could jump on me as it moves to adjustable. I also have a small 7 year balloon mortgage. I used this strategy to split the total mortgaged amount 80-15 to avoid paying PMI (private mortgage insurance) since at the time I only had 5% to put down.

The balloon mortgage is at 6.99% and even though the monthly payment is positively tiny, it annoys me in principle. I could pay it off in a year’s time, but my financial advisor felt I’d be better off using that money elsewhere. Plus, it’s deductible, so the rate isn’t quite as bad as it looks initially.

I always planned to sell my cute little 750 square foot home before the 7 year point, but am attracted to the idea of locking in a nice 30 year rate so I have the option to stay here as long as I’d like. It’d be nice to get rid of that particular concern.

It’s tricky trying to figure out just how to time these changing rates. Everything I read seems to talk about a long recession underway, but I can’t be sure just how low rates will go. I do feel like in a few more weeks’ time, 4.90% will be a thing of the past.

The original version of this article, Searching for a CD as the Rates Plummet, is copyrighted by Consumerism Commentary.

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Kiplinger’s Personal Finance Magazine has some suggestions for saving a million dollars regardless of your age. The only catch is that it’s going to take several decades to get to that point. The passing time has a detrimental effect, however. Inflation will eat away at your purchasing power so $1,000,000 thirty years from now will not be as useful as $1,000,000 now. Regardless, taking these thoughts into account is better than doing nothing.

At Age 35

* Save 15% of your gross income. In addition to whatever short-term savings goals you might have, like a down payment on a house or preparing for children, 15% of your gross income should be saved for your long term retirement goal. Kiplinger’s calculates you’ll need $671 per month invested in the stock market if you’re starting from scratch at this age.

* Shift your assets to 90% stocks and 10% bonds. I think this recommendation could be misleading. I think your assets must be separated into buckets for specific goals, and then the asset allocation must be tied to the time horizon for those goals. For instance, at age 35, it will still be several decades before you can use your retirement funds. I would keep them in 100% stocks (or close to it). Savings intended for a house down payment should be in bonds, CDs, or cash, depending on how soon you’ll need the money. Overall, this could look very different than a 90/10 mix.

* Invest in a 529 college-savings plan. I’m not sure that this piece of advice can be as universal as the magazine suggests. Not everyone has children or other relatives who will be attending college. It’s a good idea for those who are already on a clear path of having a secure retirement and who have family members who can benefit from the tax-free distributions from a 529 plan.

The monthly $671 you’ll need to devote to retirement assumes you have no savings. If you’ve managed to save $50,000 for retirement by age 35, then you’ll only need $304 each month, less than half. But if you can manage the higher amount, I would strive for that.

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How to Make a Million at 35 [Kiplinger's Personal Finance]

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Kiplinger’s Personal Finance Magazine’s February issue has suggestions for saving a million dollars, whether you’re 25, 35, 45 or 55 years old. The authors assume that you’ve already been saving money every year, but provide a strategy to add $1 million to your net worth over time.

At Age 25

* Contribute enough to your 401(k) to take advantage of the full employer matching contributions. Look at it as free money or an instant 100% return (if your employer matches your contribution dollar for dollar).

* Allocate your entire invested funds into a broad selection of stocks. A long time horizon means you have time to weather the fluctuations and risk of the stock market, but the diversification you would get from a broad-based index mutual fund will make sure you’re not overexposed in a certain stock or industry.

* Pay down credit cards. Better yet, don’t have any credit card debt in the first place. If it’s too late for that, switch to an all-cash spending plan until you’re able to spend less than you earn and divert extra cash to debt to avoid as much interest expense as possible. To get out of debt as efficiently as possible, check out the better snowball method.

* Set up an emergency fund. As I pointed out recently, an emergency fund should be more than just a savings account. However, getting several months’ worth of expenses in a liquid account is the first step. This should be a priority.

According to the Kiplinger article, if you start saving $286 per month at age 25, assuming an 8% average annual return, you will have $1 million by age 65. Having forty years to work with is helpful. The longer you wait, the more difficult it will be to reach the same goal.

When I was 25, I was working at a non-profit organization with a long commute. I was not making enough money to save $286 per month when considering rent, travel, and food expenses. While I liked working there, I was finding myself in worse financial condition each month. It took some shaking up before I was able to get myself on track.

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How to Make a Million at 25 [Kiplinger's Personal Finance]

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In an world of overly simplified platitudes and one-size-fits-all “advice,” there is little repeated more in personal finance than the importance of the emergency fund. Typical popular financial advice prescribes a high-yield savings account in which one can store three to six months’ worth of expenses. Suze Orman suggests aiming for eight months’ expenses in a savings account. David Bach believes four months is a good starting point for an emergency fund.

Advice for a fat emergency fund sounds good when high-yield savings accounts are actually providing high yields. When interest rates are low, it can be financially detrimental to leave so much cash uninvested. It may be worthwhile to diversify. Rather than having just an “Emergency Fund,” like a “subaccount” at ING Direct with its own name, this can be only one component of a larger scheme. To encompass all that could be included, perhaps “Emergency Plan” is a better term than “Emergency Fund.”

I am not talking about a box that you keep in the trunk of your car that contains a gas mask, a gallon of water, a hand-crank radio, and a can opener, like one of my coworkers. While that might be helpful for the Y2K bug when airplanes fall out of the sky in midflight, this “Emergency Plan” refers to finances only. There are five components.

1. Mattress cash stash. Obviously not hidden beneath your mattress, having some cash in the house — hidden in a weird place that a burglar would not think to look — gives you access to fast cash if you need to leave right away without any time to stop at a cash machine. Also, if the ATM network is down for some reason, you won’t have any trouble trying to access some money. It would be impossible to predict how much you would need before you could access the banking system in a catastrophic event, so I think the guideline here is just to be reasonable. Maybe keep a couple hundred dollars in cash around the house.

Of course, in the worst situation imaginable, money itself would lose all value and society would be reduced to a system of bartering for what you need. Even gold, which some people claim has intrinsic value that paper money does not (it doesn’t), could be worthless. Don’t bother keeping bars of gold around. The idea is to prepare within reason. Keep this amount as low as possible; money sitting around loses value relative to the things you would need to trade it for thanks to inflation of the money supply.

2. Liquid account. Unless the banking system fails, you should be able to access your next level of emergency fund within 24 hours. With interest rates decreasing every week, it might make sense to seek out better paying liquid investments like money market funds. All of the cash I have earmarked for emergencies, about $10,000 right now, is held at ING Direct, currently one of the lowest of the “high-yield” savings accounts.

It wouldn’t hurt to add layers to this level. This year, I will change my Emergency Plan to leave cash in the amount of expenses for one month or less at ING Direct while increasing my savings at a money market fund that beats inflation like the Vanguard Prime Money Market Fund, currently earning a 4.55% yield. Between my mattress stash and liquid accounts, I want to be able to cover three months’ worth of my current expenses. That’s a little lower than what’s recommended by the gurus, but I chose this amount because the chance of losing both of my sources of income at the same time is low and I believe I could find a new job quickly if necessary.

Bankrate discusses using certificates of deposit or bond funds for this portion of liquid savings, but they are not liquid enough. The interest premium offered over high-yield savings accounts and money market funds, usually small, won’t outweigh the chance of paying an interest penalty for early withdrawal before maturity.

3. Investments. With investments, we’re starting to get into the territory of the money you’d be better of not touching, even in an emergency. The Roth IRA is the first stop if you need to tap your investments in an emergency. You can withdraw your contributions (not your earnings) without penalty, taxes, or fees (depending on your broker). Once the emergency condition has subsided, you can still contribute the money you withdrew back into your Roth IRA.

If you don’t have a Roth IRA, you may have to turn to taxable investments. This isn’t a great option, but still better than the next. If you have to sell when you’re investments are down, you’re not doing yourself a favor down the road. You may get some tax benefits in this case, but you’ll have to determine whether it’s worthwhile. If you sell your investments while they’re higher than they were when purchased, you will owe taxes, which could be just as troubling in the short term if you’re still in an emergency condition. Either way, you’ll also contend with transaction fees.

Stay away from granting yourself a loan from your 401(k). If you lose your job during this emergency, your 401(k) loan will become due immediately. That’s an unaccessible level of risk, at least for me.

4. Credit. This is a slippery slope. Some recommend using a home equity line of credit as an emergency fund but having a HELOC in the first place means having an interest expense every month. The purpose of a HELOC goes beyond emergency funds, and therefore shouldn’t be the only part of an Emergency Plan.

Credit cards should be avoided in most cases. They could be used most effectively when you know that the emergency condition will subside before your credit bill comes due. Interest charged for credit card accounts is usually way too high for effective emergency use. If you have a special promotion with your credit card, like 0% APR on purchases or cash advances, then taking advantage of these deals could pay off. It requires extra special attention to make sure you don’t fall into any of the credit card traps. If you end up owing back interest due to a late payment, even in an emergency situation, you could be paying for this emergency longer than you would otherwise.

5. Friends and family. While I originally thought this fifth component is outside of one’s control, if you’ve done a good job of taking care of the universe around you, the universe will return the favor when you’re in need. If you’ve made a habit of helping those in need when you were able, when you’re in need, perhaps someone will be there to look out for you. Perhaps this will be in the form of your roommate or friend lending money to you at a very low rate or a gift from your parents. Either way, it’s best not to rely on help from the universe, as there are no guarantees. When you save cash in a money market fund, it’s guaranteed to be there when you need it. Friends and family can provide powerful assistance, but if you don’t need it, don’t take it.

Here’s a secret. There are actually six components.

6. Reduce your expenses. One thing you can do to make your Emergency Fund last longer, or save more for next time, is reduce your expenses temporarily. Make some sacrifices, like the Expensive Coffee-Relate Drink, cable television, or weekly dining engagements. Desperate times call for desperate measures. Feel free to indulge again once you find a new job or otherwise increase your cash flow to normal conditions.

What is your Emergency Plan? Do you consider yourself covered with cash in a savings account, or do you take a more complete approach?

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The original version of this article, The New Emergency Fund: Five Components of an Emergency Plan, is copyrighted by Consumerism Commentary.

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Over the last week or so, I’ve written a little about small changes you can make to your savings habits to speed up your interest earnings. This is a task that is getting more difficult with the economy possible heading for a recession and with the Fed lowering interest rates. With lower yields even in the highest-paying online savings accounts, bank accounts need as much help as possible. Here’s a summary of the 6 ways I’ve determined to break the light barrier.

1. Open a High-Yield Account. Most banks are counting on your continued comfortability and settlement with interest rates as low as 0.25% APY. You can do much better than that. More »

2. Keep Your Change. Make a habit of dropping your loose change into a jar every day, and deposit the savings monthly. Try rounding all your purchases to the next dollar and transferring the sum of the remainders into the high-yield savings account. The little amounts add up over time and add to your principal. More »

3. Automate Your Savings. Set up direct deposit and automatic transfers so your money moves into savings and grows without your meddling interference and temptation. More »

4. The Expensive Coffee-Related Drink Factor. The Latte Factor® as described by author David Bach is not free of problems. Some of the problems can be conquered if you take the spirit of the concept. Reduce or eliminate a habitual, unnecessary expense and divert the funds to savings instead. More »

5. Hide Your Savings From Yourself. Try putting your savings in a different bank, with statements shipped elsewhere. Hide this account in your money management software so the balance isn’t included in your totals. Out of sight, out of mind. More »

6. Make Your Raise Invisible. Roll any increases in pay from your employer directly into your savings. A 3 percent raise signals a 3 percentage point increase to your savings. If you were saving 10% of your income, start saving 13%. More »

I am confident that in addition to these, there are many other ways to supercharge your savings. If you have any suggestions, feel free to share in the comments.

The original version of this article, Put Your Savings in Hyperdrive: 6 Ways to Accelerate Your Interest, is copyrighted by Consumerism Commentary.

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This is the last installment of the series in which I offer a few suggestions for picking up the pace of your savings. For those not familiar with the concept of “hyperdrive,” the word refers to traveling faster than the speed of light, common in science fiction. This is the speed I would like my savings to accumulate, so I’ve compiled a few tips to help reach that pace.

In my company, there is a scheduled time that all employees receive information on their bonuses and annual pay increases — even if the answer is $0 to both. That time, coinciding with annual reviews, is coming shortly. This yearly event offers a great chance to accelerate savings. It comes down to how you handle the raise and bonus.

6. Make Your Raise Invisible. Your boss has just informed you that you will be receiving a raise of 3% and a bonus of $5,000, both taking effect in the next pay cycle. What is your first inclination? From talking with my coworkers, it seems to be common for the bonus and raise to be spent already. Anticipation of a pay increase seems to inspire spending ahead of time. Thus, it may make sense for many people to use the bonus and raise to pay off debt.

Since this is a series about saving, I am taking the position that no significant debt needs to be paid off. Your raise and bonus would go far to pay down high-interest credit card debt or a home equity loan. But if your goal is to maximize your savings, the raise and bonus can come in handy.

A general guideline is to increase your savings percentage by the percentage increase of your raise. That is, if you receive a 5% raise and you’ve been saving 10% of your income, increase your saving to 15% of your income. This means that your increase will be invisible to you and your budget.

Before-raise salary: $50,000
Before-raise 10% saving: $5,000
Left over: $45,000

After-raise salary: $52,500
After-raise 15% saving: $7,875
Left over: $44,625

This is an interesting number game. With this raise, you are earning $2,500 more than you were previously, but you are savings $2,875 more in the new year. By applying your raise increase percentage to your savings percentage, you’re actually saving a larger portion of your income. You are also reducing your left-over income after savings, but not by much (less than 1% of your new salary).

I’ve taken another approach in the past, focusing on retirement investments rather than straight rainy-day savings. I am not currently maximizing my 401(k) contributions, nor was I when I received my pay increase in prior years. When I received my raise each year, I increased my 401(k) contributions by the same percentage.

Whether you’re putting a larger percentage of your income in a high-yield savings account or a tax-advantaged high-yield fund, you’re making a good decision, but a larger deposit in your savings account will allow you to see your interest grow exponentially with each paycheck.

When it comes to the bonus, this is a no-brainer. As long as you don’t have debt, a lump sum deposit into your savings account can provide a boost towards your savings goal.

It’s quite possible, in an economic downturn or as a result of poor performance, that the raise offered by your employer is invisible itself. That’s a discouraging sign regardless of the reason. I’d suggest increasing savings, anyway, if possible. You’ll also be faces with increased prices. Your raise doesn’t need to match inflation, particularly if your expenses are lower than your income, but the government’s official inflation number is generally used as a benchmark for an “adequate” cost of living increase.

Most employees will receive some sort of increase this year. If you are one, you have the opportunity to get one step closer to hyperdrive by making that raise invisible.

The original version of this article, Put Your Savings in Hyperdrive, Part 6: Make Your Raise Invisible, is copyrighted by Consumerism Commentary.

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Over the past week, I’ve been sharing some ideas for taking your savings to the next level. Try to take advantage of high-yield savings accounts while you sill can. With the economy in bad condition, it’s likely the Federal Reserve is going to lower the target interest rate, which will mean lower interest rates for savings accounts. Get the risk-free 5% interest rates while you still can. Compounding interest in these accounts is the acceleration that reaches “hyperdrive.”

But there is a challenge. In order to make the most of compounding interest, you can’t withdraw the money while it’s working for you. The more you don’t see or otherwise come into contact with your money, the less tempted you are to access and spend it. So here’s tip number five for putting savings in hyperdrive.

5. Hide Your Savings From Yourself

Once you have a positive approach to saving, including the prior hyperdrive suggestions of using a high-yield savings account and automating your savings, two clichés are important to remember: “Set it and forget it,” and “Out of sight, out of mind.”

While common sense says that the more attention you pay to something, the better off you are, I disagree in this case. More attention given to something that’s boring — interest accumulation, like watching grass grow — will sometimes create a frustration and a desire to do something more. Of course, investing for the long-term in the stock market will provide better returns, but for now, we’re just talking about short or medium-term saving. So if you have a tendency to fuss or futz, or if ATM access to your account introduces the desire to withdraw and spend your savings, cut off all but essential contact with that account.

I am not suggesting hiding money from your family. Hiding your money from yourself doesn’t mean you should keep accounts without your spouse’s knowledge.

1. Open a high-yield account at a new bank. Accounts at new banks are easy to forget about. By opening an account at a bank new to you, you haven’t created a habit of checking the balances online. Avoid starting this habit.

2. Sign up for paperless statements. Ensure you use an email address you don’t check often. This way you can access your tax forms and statements when you need to, but you don’t have a constant reminder.

3. Don’t include this account in your net worth. If you track your finances in software like Quicken, Microsoft Money, or Mint, leave this account out of your calculations. In Quicken, you can hide the accounts by clicking the “Customize” button at the bottom of the account sidebar. With the account hidden, you can still manage it within Quicken but keep it out of view and not include it in the totals. With Microsoft Money, Mint, and other software there is no “hide” function, so delete the account.

With your savings hidden away, your interest is free to accrue approaching light speed without interference.

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The original version of this article, Put Your Savings in Hyperdrive, Part 5: Hide Your Savings From Yourself, is copyrighted by Consumerism Commentary.

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I’m on a quest to determine a number of financial moves that will accelerate savings beyond the typical snail’s pace. I’ve written so far about opening a high-yield account, keeping your change creatively, and automatic your savings. These are all basic concepts that can be applied in interesting ways with a little bit of attention.

Many people disagreed with me when I railed against The Latte® Factor, David Bach’s trademark catchphrase and program which prescribes dropping your expensive morning coffee drink and depositing the value of each day’s savings into some sort of magical account that will return 10% annually after taxes and fees for forty years and end up with close to $1,000,000 more than you would have otherwise.

I’ll address my issues with David Bach’s program below. Nevertheless, a system similar to David Bach’s suggestion has merits for some people, thus I have a fourth tip for putting your savings in hyperdrive.

4. The Expensive Coffee-Related Drink Factor.

Obviously, I don’t want to call it The Latte® Factor, which is a registered trademark and a signature selling point that drives millions of dollars in books in seminars. Since I don’t drink coffee, I’ll use the therm ECRD to refer to any habit that requires a frequent expense but is easily controlled or replaced by another, less expensive habit. The savings from the elimination or switch can be accumulated and deposited into a high-yield savings account.

Problems With The ECRD Factor

It is important to remember that all of this is pointless if one doesn’t make smart decisions about the larger issues in life. You can forgo the daily coffee from Dunkin Donuts, but if you still eat two doughnuts every day, you’re spending money on something that you may pay for in health care costs later on. You can switch from premium gasoline to regular gasoline, but if you buy new cars every three years, the savings from the gasoline are ten or a hundred times lost by the unnecessary expense of buying new cars so frequently.

The scenario David Bach paints — an after-interest, after-fee, after-tax increase of almost $1,000,000 in 40 years from dropping your daily latte is an extremely unlikely scenario, both mathematically and behaviorally. Bach makes some serious assumptions that don’t have much validity in the “real world.”

• You probably won’t earn 10% in an account for forty years after taxes and fees.
• To invest in an account that earns even 8% over forty years, you will lose a lot of your money due to transaction fees. A $4 transaction fee, like the one charged by ShareBuilder, on a $150/month investment is a 2.7% fee right off the top. That’s not a wise investment.
• Without your daily dose of caffeine, you may miss out on career opportunities while asleep at your desk. This sounds like a stretch, but if you quit cold turkey, you could see adverse effects in your productivity and you may miss an opportunity without knowing it.
• It’s also quite possible that you enjoy your latte, understand the consequences and future savings you are giving up, and have decided your enjoyment is worth the potential loss.

So The ECRD Factor can have mixed results when you deal with variables in the real world. Don’t expect the kind of wonderful returns David Bach promises, but the frequent expense reduction or elimination that forms the basis of this tip can be a significant part of your saving strategy if the rest of your financial decisions are sound.

Making The ECRD Factor Work

What’s your ECRD? It’s probably best to pick something to which you do not have a physical addiction without appropriate support. While I would always suggest eliminating an addiction to heroin or alcohol, there are more immediate concerns in these cases than saving money, namely staying alive and healthy. It’s best to choose a daily expense that can be eliminated or replaced immediately without any significant withdrawal symptoms. The daily coffee-related drink might be a good candidate, particularly if you buy such drink from an expensive store like Starbucks. The good news is you won’t go through withdrawal if you simply replace the expensive drink with your own freshly brewed concoction.

And if you eliminate the drink entirely over the span of a few weeks, or replace it with water, you will get used to the change in chemicals in your brain within a few weeks.

Caffeine isn’t the only option. A coworker of mine has stopped buying lunch every day, opting to bring in a homemade sandwich instead. If not lunch, I know someone who used to eat out at an expensive steak restaurant every week. If you work in New York City, there’s the temptation to go out to the bar for happy hour with your coworkers. Do you smoke? Slowly cutting back will improve your health and save you thousands of dollars even before interest.

How about the news stand in the morning? If you pick up a newspaper on the way to the office to read on the train, consider this your ECRD. Replace the newspaper with a free news podcast if you already own an mp3 player. If you really like the newspaper, consider subscribing. You’ll save quite a bit off the newsstand price. The difference in price is your ECRD.

Apply Your Savings and Earn Positive Returns

If these are habits, cutting back (without affecting your networking experiences) and intentionally depositing the money you save will add up over the long term. It doesn’t have to be perfect. The three previous hyperdrive tips come in handy here. If you’re used to spending $4.50 in cash every morning for your latte and are ready to eliminate the drink entirely, put that $4.50 in your coin jar before you leave for work for later deposit into a high-yield savings account. Not a cash user? If you spend about $100 for your chosen ECRD a month, set up an automatic transfer from your checking to savings account for that amount. If your bank allows you to create separate goal-related accounts, like ING Direct’s subaccounts, create one specifically for your ECRD savings and transfer your monthly savings there.

Your high-yield savings account is not earning the 10% promised by David Bach. Forget about that rate and use the money saved for short-term goals. The more you save, the more you’ll also have available for long-term goals like retirement and legacy. So keep making good decisions all around — especially on the bigger expenses like real estate, vehicles, and education — and these seemingly small savings will add up over time. It starts off slowly, but compounding interest is the key to putting you savings in hyperdrive.

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The original version of this article, Put Your Savings in Hyperdrive, Part 4: The Expensive Coffee-Related Drink Factor, is copyrighted by Consumerism Commentary.

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If you’ve ever run from one point to another, you’re probably aware that there is a limit to your speed. With “analog” equipment like the bones, muscles, joints and tendons in your legs and feet, there are physical limitations that prevent you from going too fast. Don’t worry. Thanks to recent inventions, it’s quite easy to get around this problem. Bicycles and cars allow your muscles to exert much less effort while resulting in faster movement. Sometimes machines and computers are required to break through limitations.

As you might imagine, saving money follows the same concepts. Picking up your paycheck from your mailbox, endorsing the back, and bringing it to your bank is like walking from one point to another. (Even if you drive to the bank, for the purpose of this metaphor, you’re a walker.) Once the teller confirms your identity and the validity of the check, he or she might give you the sum of the check in cash. Perhaps you cash only a portion of your check — the money you’ll need for the upcoming week — and deposit the rest into your checking or savings account at the bank. Congratulations, you’re now moving at 25 miles per hour.

You’ll still need better equipment to make the jump to hyperspace.

3. Automate Your Savings. With your savings on autopilot, you have less to worry about. While you’re not looking, money is transferred to your bank account — a high-yield savings account is best but a checking account may be a necessary intermediary — and begins earning interest. There is no need to waste gasoline on trips to the bank. There are several parts to automating your savings.

Direct Deposit

Direct Deposit is one of the most positive developments in saving. Rather than cashing your pay check and depositing only what is left over, you can instruct your employer to transfer your after tax salary each payday directly into your checking or savings account. Large companies usually make this an option when you first accept the job. Otherwise, you may need to get in touch with your human resources department. Smaller companies may not offer this feature, but it wouldn’t hurt to suggest to those whose make these decision that the company implement the service.

There are a number of benefits. Most immediately, you don’t have to worry about finding time for traveling to your bank. You reduce the risk of losing your paycheck in transit. In most cases when you receive your funds via Direct Deposit, the money is made available to you on the date the check is deposited rather than being subject to a holding period as you would be for other deposits. Direct Deposit also allows you to split your paycheck among a number of accounts, so you can immediately designate a portion for savings and begin earning interest on the day of deposit.

What are the drawbacks of Direct Deposit? If you still use cash for transactions throughout the week, you’ll need a way to get the cash out of the bank. These withdrawals should be done from checking accounts rather than savings accounts. Savings accounts are limited to six withdrawals or outgoing transfers per month — so most of your transactions should take place in a checking account. You can use an ATM card to get the cash you need. You should be the last entity to touch your money — let the interbank technology take care of as much of these transactions as possible.

Automatic Transfers

In most cases, your paycheck is best deposited into a checking account, and from there, you can set up automatic transfers into savings and cash withdrawals. The best high-yield savings accounts can be linked to your checking account. This will let you transfer money directly within the same bank or from one bank to another without writing checks. For example, if you choose to open accounts at ING Direct, you could set up a link to your local checking account into which your paycheck is Directly Deposited.

You can then create automatic savings plans, instructions to periodically transfer money from your checking account to the high-interest savings account. Set it and forget it. While I am citing ING Direct as an example, they are not the only bank that allows customers to create automatic periodic deposits. Find a bank you like and review the options they offer.

With all your money moving behind the scenes, from your employer to your checking account to your savings, you are earning interest without knowing it. When the money is not passing through your hands, there’s less temptation to spend it right away. More money ends up in your savings, accruing interest for the future. Effectively, each time you feel you need cash, there is an obstacle of going to the bank or ATM. Some may decide that the expense is not worth the hassle and simply leave the money in savings.

Automation allows more of your money to find its way to your savings account quicker and remain there, earning interest.

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The original version of this article, Put Your Savings in Hyperdrive, Part 3: Automate Your Savings, is copyrighted by Consumerism Commentary.

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Whether you’re trying to establish an emergency fund or putting money away to take your dream vacation, you can reach your goal faster by putting your savings in hyperdrive. Unfortunately, scientists have not yet perfected time travel. When they do, saving for retirement might only entail traveling back to the 18th century to deposit $1,000 in a national bank and popping back to the present to reap the rewards of three hundred years of accumulated interest.

Until modern technology catches up to science fiction, savers are relegated to more traditional forms of accelerating their income from interest. Yesterday, I wrote about opening a high-yield savings account, a set-it-and-forget-it task. The next suggestion involves creating a daily habit.

2. Keep your change. At first glance, focusing on your daily pocket change may seem like a lot of effort with too little payoff. For example, I’ve seen people who are so focused on picking up pennies from the ground by keeping their eyes down that they miss the dollar bills right in front of their faces. That’s a prime example of being penny wise, pound foolish.

Nevertheless, I’ve also seen coin jars add significantly to savings. A coworker of mine emptied her jar recently and counted $500 from the past year. This type of savings may not be worthy of your retirement plan, but it can mean the difference between renting an economy car and a convertible on vacation. A mason jar may not support your children’s education, but it might pay for internet service for a year so your kids can research their assignments online. This is significant, and the beauty is in the simplicity.

The concept is simple, but the execution is not as easy as it used to be. Back when dimes were 90% silver, cash was king. Almost all everyday transactions were handled with cash. Inflation from the last 50 years hadn’t yet eroded the value of coinage, so when you dropped your coins in a jar at the end of the day, you knew it was worthwhile.

Now, fewer transactions are handled by cash, and you have less change in your pocket when you arrive home. The change you do have has decreasing purchasing value, as well. Keeping your change in the 21st century now takes more than filling a piggy bank with your coins.

That’s not to be overlooked however. The only material needed is a jar or piggy bank, and the best placement is near your front door, perhaps right next to the spot where you leave your keys when you walk in at the end of the day. It’s quite simple to make this a habit: check your pocket or purse as you put down your keys or hang up your coat. Perhaps you won’t have anything most of the time, but it’s a habit worth creating anyway.

Once a month, or more frequently if you desire, bring the coins in the jar to your bank to deposit into your savings. If your bank has a free change counting machine this process may be easier. My girlfriend enjoys rolling coins into wraps so I don’t deny her the fun. Don’t forget that this deposited accumulated change will do much more for you in a high-yield savings account than in the standard account offered by your local bank.

Unfortunately, with the decreasing use of cash, the “analog” coin jar may not be enough. In a world where debit cards and credit cards rule financial transactions, a high-tech piggy bank equivalent may make the difference. One example was corporate-sponsored. A few years ago, Bank of America created the “Keep the Change” account offering.

Every purchase you make with the debit card is rounded up to the nearest whole dollar. When the debit card is used to make a purchase, the amount deducted from your checking account is the rounded up number. For example, if at item is purchased for $15.25, $16.00 is deducted from the account.

Of that $16.00, the difference due to rounding, $0.75, is transferred directly into your Bank of America savings account, where presumably it will earn some interest. Of the remaining $15.25, Bank of America keeps about $0.25, a standard merchant transaction fee, and the merchant receives the remaining amount, approximately $15.00.

Similarly, One from American Express is a credit card that will deposit 1% of your purchases (plus a $50 bonus after your first purchase) into a high-yield savings account.

There’s no reason for this type of cumulative saving to be tied to certain debit cards, debit cards, bank accounts. While they make it easy for you, it would be worthwhile to use all of your credit and debit card accounts as well as a better-paying savings account.

If you’re ready to put your savings in hyperdrive, then you must already track your account balances and activity in software like Microsoft Money, Quicken, or any number of web-based offerings. You’ve also presumably followed yesterday’s suggestion of opening a high-yield savings account. On a weekly basis, take a look at all your debit card and credit card transactions. Round each expenditure up to the nearest dollar. Total the excess amounts and transfer the sum from your checking account to a special high-yield savings account earmarked for whichever goal on which you happen to be focusing.

This process may be too involved for daily attention. If you review your financial activity every few days, keep a spreadsheet going with the tally and transfer the sum of the remainders to your high-yield savings once a week or once a month. The idea is to create a habit at a rate that works best for you, and everyone has different preferences.

Do what’s best for you, but don’t ignore the power of doing more with your change — and letting your extra change do more for you.

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The original version of this article, Put Your Savings in Hyperdrive, Part 2: Keep Your Change, is copyrighted by Consumerism Commentary.

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Hyperdrive, also known as warp speed or a number of other terms in science fiction, refers to traveling faster than light. While theoretically impossible for objects due to the special theory of relativity, moving at this incredible pace is possible for your money. While you have a savings account earning continuous interest, you are becoming slightly richer not every second, not every microsecond, but every infinitesimal portion of time. That’s fast.

If your money is earning 0.25% yearly interest in a standard brick-and-mortar savings account, you are not making the most of your money. For no more risk you can be earning up to 20 times as much. Savings, whether in a high-yield account or not, is among the safest of all investments. Here is the first tip for putting savings into hyperdrive. Keep in mind that the terms “savings account” and “money market account” (not “money market fund”) are interchangeable.

1. Open a high-yield savings account. Many banks are getting away with murder. They know that most customers are fine letting their money sit without looking for better alternatives. Comfortability plays a role.

If you’ve been with a bank for 15 years, you feel comfortable with them and are less inclined to feel the need to shop around. This is acceptable behavior as long as you understand that you could be missing out on significant interest income. Take a look at this list of high-yield savings accounts or look for the lists on BankRate.com.

Many of the banks that pay the highest interest do not have brick-and-mortar branches. These branches are expensive to run. Without having to manage branches, banks can theoretically save more income and pass that savings onto account holders in the form of interest.

There is no reason to feel nervous about opening an account with a bank that only exists online. As long as they are insured by the FDIC — and all the banks listed here are — you have the same protections you have with a traditional bank. Also, you’re safer sending your information over a secure, encrypted internet connection than you are traveling to a branch with your money.

Opening a high-yield savings account is a no-brainer. With a $10,000 balance at the beginning of the year and no further deposits, a savings account with an annual percentage yield (APY) of 4.5% earns $450 in interest, $425 more than the typical savings account offering 0.25% APY.

The original version of this article, Put Your Savings in Hyperdrive, Part 1: Open a High-Yield Account, is copyrighted by Consumerism Commentary.

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In the interest of further consolidating my finances, this past week I cashed in a small collection of 1988 series EE bonds which I’d kept hidden away ever since. All had reached and surpassed their maturity dates long ago, so they were worth their face value and then some.

Here’s what mine were worth, which should give you an idea of what to expect if you’ve got some series EE bonds of that vintage hidden away as well:

1 $500 bond = $684.00
1 $100 bond = $131.52
3 $50 bonds = $68.40 each

All in all, I had $1,020.72 in cash, which I put directly into my savings account to reinvest. This does mean I’ll have to account for $645.72 in interest when I do my 2007 taxes, but I’ve got lots of charitable donations this year to offset this so I think it’ll be okay.

I might have saved cashing these until after I retired to gain a better tax advantage, but was eager to consolidate these gift monies into the rest of my savings to better leverage them for other, more immediate investments.

Do you own bonds? What’s your savings bond strategy?

The original version of this article, Cashed In Series EE Bonds, is copyrighted by Consumerism Commentary.

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The holiday season is approaching, so I know I’ll be spending more money. I have even begun planning a vacation, and I want to make sure I can afford it. Additionally, I am projecting that my side business will make less money in the future and not allow for the career transition from full-time cube dweller/half-time blogger to full-time blogger that I have been considering for the past year.

I’ve spent more this year than ever before, as evidenced by fancy new gadgets I now own, previously delayed for years until my finances supported such endeavors. I’m wary about the future, so it’s time to turn my eye back to savings. I’ll start with 10 easy ways to save more money without much effort. Some of these I do, some I don’t yet.

1. Automate your savings. Direct deposit is the first step. Your money goes right into the bank. Rather than having to make a decision about “how much to deposit,” you’re making a decision about “how much to withdraw.” Immediately, you’re likely to end up with less cash in hand and more in the bank. The second step is to automatically move money from your direct deposit account (usually checking) to savings that shouldn’t be touched. Try a few of these high-yield savings accounts out. They’ll be happy to set up automatic withdrawals.

2. Collect your excess coins. I enjoy looking through circulating coins, if by chance I discover a rare specimen such as a silver quarter. No, it doesn’t happen often; most of the good stuff has been removed from circulation by other collectors or knowledgeable bank tellers. But while I’m saving my daily change in a glass jar, I’m also saving myself from spending that money. Every so often, I roll the coins with free sleeves from the bank and take them in for deposit.

3. Use goal jars. You’ve seen those jars in country shops. They are short, wide-mouthed clay pottery or stoneware jars with cork tops. On the outside of the jars, they are labeled using varying levels of wit. In these jars, you can set aside money you’d like to budget for “retirement,” “kids’ education,” “dreams,” or the “Harley fund.”

4. Form a budget and stick to it sometimes. A budget is probably the most depressing part of personal finance — and that’s why I avoid it. If my income dips so low that it approaches my ever-increasing expenses, I’m going to have to reconsider my approach. I see budgets as guidelines, and I believe they shouldn’t be inflexible. Sometimes, to enjoy life while we can, we have to make sacrifices in one category to pay for another. Budgeting discourages that; budgeting discourages living. Nevertheless, start budgeting, and you’ll start saving. The idea here is to budget without much effort, so don’t go crazy.

5. Eliminate or reduce a hobby or subscription. Hobbies can be expensive. Just ask anyone with a Faberge egg compulsion. Going to several Major League Baseball games a year can be expensive, as well. I see no need to eliminate these experiences completely, but cutting back will save some money and free your time for other, less expensive things. Also, canceling Netflix, magazines, extra cable channels, or your spring water delivery service can net you a few dollars each month without effort. Most people won’t miss these things once they are gone for a few months.

The first five tips focused on reducing spending, but there is another, equally important, method of saving more money. It may be more difficult for some, but by earning more money, you can save more money.

6. Sell stuff on eBay or Amazon Marketplace. If you were thinking of having a yard sale, think again. By selling your unwanted items online, you’ll reach a much wider audience, including more of those who appreciate what you have to offer. They will pay more for many things than would drivers by. Many people who troll garage sales now do so only to look for bargains in items that could be sold immediately online for money. You might as well be the one earning extra on the sale. Selling and shipping has never been easier; you can by and print postage from the comfort of your own home, and the post office will pick up your package for delivery from your location.

7. Start a new hobby. Wait, didn’t we just suggest eliminating hobbies? Well, there are hobbies that actually make money. These are the activities that generally turn into microbusinesses. Do you like playing with computer hardware? Become a low-cost alternative to the big box tech support. Create crafts that you can sell at art shows. If you like pets, become a pet-sitter or walker.

8. Ask for a raise. Sometimes it’s that simple. Of course, if you are successful with this request, any additional income you receive should be assigned directly from direct deposit to your savings account or investment like 401(k). Also, you should be prepared with work-related justification of why you deserve such a raise. Just wanting to save more money won’t cut it.

9. Get a second job in retail. Especially with the holidays approaching, retailers are looking to staff up with art-time help. You’d have to determine whether a $9 to $12 per hour job is a good use of your time, but if you wouldn’t be using that time to do anything else, it may be worthwhile.

10. Consult. Better than working in retail, market yourself as a consultant in whatever field you are an expert (steering clear of any non-compete agreements you might have signed with your current employer). If it makes sense to set your own consulting hours, you could earn ten to twenty times as much as the retail job — and maybe more.

It seems the methods for earning money tend to take more effort than saving money. This is why most people will tell you that it’s not what you earn but what you spend. In fact, it’s both. Earning more will be more of an obstacle for most people while saving more is easily controllable. I say do both.

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The original version of this article, 10 Easy Ways to Save Money Without Much Effort, is copyrighted by Consumerism Commentary.

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Now that the Federal Reserve Board lowered the interest rate, it looks like we’re seeing the last of the 5.3% APY savings accounts, which appear to be a dying breed. I personally expect even these to disappear shortly; after all, why offer rates in the 5s when other banks are touting rates in the 4s quite happily?

This makes me sad and nostalgic for the better savings-rate days of yore, but also prods me into taking action.

I was mightily happy with the 6% interest rate I’d enjoyed on my FNBO Direct account up until September 28th of this year, when the company cheerfully announced their plummet to 5.05% APY.

Perhaps you might think me unreasonably happy with the 6% rate. To many readers, it’s not worth the hassle of switching accounts just for some chump change. But I’m one of the aforementioned chumps, you see, and to me, several hundred dollars I don’t have to work for on emergency fund money which was going to sit around anyway is a great thing.

Thinking about the after-tax rate does diminish my pleasure somewhat, but still, every last-day-of-the-month, my brain goes ca-ching when it runs down the roster of interest payments I’ve gotten. I threw the extra $460.34 I earned by keeping those funds in that high-yield savings account for 9 months right at my monstrous student loans, which helped to pay them off.

So today, while listening to my FNBO rep crow about their 5.05% APY on the phone, I took a nice big chunk of emergency fund money and stuck it in the highest-yielding CD I could find, 5.65% at Countrywide.

Countrywide offers the same 5.65% APY on both 6- and 12- month CDs, so before I hit “submit” on the application, I did spend some time playing Nostradamus. Would interest rates rebound by March? By September, leaving my funds off in their little electronic box not earning to their full risk-free potential?

I used the handy-dandy CD interest calculator at bankrate.com, and found that for $10,000 at 5.65% APY, a 6-month CD will pay $278 in interest and a 12-month CD, $565.

In the end, I settled on a 6-month CD for two reasons.

1. I believe that due to fallout from the subprime crisis, it’s going to be a long, hard winter, interest rates included. A year from now, I think the outlook might be a bit better, so I’m more willing to risk losing my extra “chump change” 6 months from now.

2. I know that I won’t need those funds for 6 months, but longer is hard to predict. I’m okay tying up that money for the short term, but in the long term, I might have other strategies for it, and I also am likely to need to replace my car in the Spring, so it’d be good to have cash at hand.

There’s a $10,000 minimum opening balance for the Countrywide CD, but I had that money thanks to some credit card arbitrage I’ve currently got underway on the Citi Professional Cash Card.

I know that credit card arbitrage can be risky, but for me, I’m equipped to pay the balance off at any time, so floating my $8,000 at 0% interest until the end of 2008 just allows me to earn interest on those funds. I basically pretend the money’s not there; besides paying the minimum each month, I do not think about the money or consider it part of my net worth or spending power.

And for me, that’s an important part of my saving strategy. As much as posisble, I try to make the arbitraged money become my money, which I do by paying down the balance owed to the credit card company with new money from my earnings rather than tapping the borrowed sum. I put that money somewhere to earn interest and refrain from touching it until the end of the arbitrage period, when it has acquired a little interest to boot.

Basically, I’m tricking myself into saving more money from my day-job because the monthly minimum credit card payment becomes another one of my bills. I’m actually forcing myself to pay myself first. And all the while, the $8,000 plus $2,000 of my own savings sits safely locked away, quietly earning.

I know that many people do credit card arbitrage and invest the funds, but I am comfortable only with no-risk investing of such monies, lest I not have the money to pay the balance off when it comes due. It is certainly something to be very careful about, but because the majority of my bills are online in Paytrust, I feel assured that I’ll never miss a payment.

Countrywide has a verification process I need to go through before my account is fully set up, but my 5.65% rate is locked in for the next ten days, so I will act quickly and make sure it’s confirmed and funded in time.

Come what may with interest rates, I feel satisfied having locked in a nice risk-free rate of return for a substantial chunk of my savings. I won’t earn a lot of interest overall, but at least I’m optimizing my earnings.

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The original version of this article, Grabbing the Last of the 5.65 APY CDs, is copyrighted by Consumerism Commentary.

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Here is a question from a reader:

I’d be interested on a post about what to do after you’ve dipped into your emergency fund considerably. How quick should you replenish it? What are the best ways to replenish it? Is it worth backing off on funding things like Roth IRA’s to build back your emergency fund? It seems like everyone talks about getting an emergency fund, but I haven’t seen many thoughts about what to do after a real emergency.

First of all, it’s good to hear that everyone talks about the emergency fund. Having several months’ worth of expenses easily accessible is a good starting point for anyone trying to get their financial house in order. The funds can be in pure cash, a high yield savings account, a Roth IRA, or any combination of those three. If you have good credit, you may decide that a credit card that offers 0% APR on purchases can assist. Cash in your mattress (or a safer physical location) is the most liquid, but you do want your money to earn some income, so find a balance that works for you.

Just don’t touch the funds unless you experience a real emergency. Buying a new high definition television does not constitute an emergency, but unexpected hospital bills do. Taking a spontaneous vacation to Vienna should not signal a dip into emergency funds, but the loss of a job and therefore the ability to buy food or pay your heating bill might.

When you do have an emergency — a real emergency — you’ll thank yourself first for creating the emergency fund and then for not already depleting it for a non-emergency. When this emergency does occur and your fund is reduced to zero, once the situation has passed, it will be time to start replenishing the account.

If you pulled out your contributions from your Roth IRA for the emergency, which you can do tax and penalty-free, this is probably the first account you’ll want to replenish. This is simply because there is a deadline; after the tax due-date, usually April 15 of the next year, you won’t be able to replenish this year’s Roth IRA contributions.

The next priority would be any debt you might have incurred thanks to this emergency. Even while replenishing your Roth IRA, you should be paying at least the minimums towards your debt, but once you have taken care of any time-limited obligations, pay off that debt at full speed.

Assuming that you are receiving income at this point, automate your emergency savings to get your cash cushion back to its previous level.

How long should the process of restoring your emergency fund take? That’s going to depend on a number of different variables. Not all emergencies are created equal. If you require major surgery or an extended hospital stay and insurance doesn’t cover the expense, it might take a year to refill your accounts if you can return to work. If you can’t work after your hospital stay, it could take much longer.

In fact, if your emergency has changed your life so much, you’ll have more to worry about than just your emergency fund. At this time, you may find yourself forced to reconsider expenses you’ve always found affordable, if not just necessary. Cable television, internet access, eating out or purchasing enjoyable groceries for cooking, and basic entertainment may be eliminated. With fewer monthly expenses, you won’t have to replenish your emergency fund to the previous amount.

Even as you’re getting back on your feet, a 5% automatic deduction from your paycheck into savings can go a long way to improving your safety net. As you find yourself improving your position, increase that automatic deduction.

If you have any more suggestions for what to do after a real emergency, feel free to leave them here. I have not yet experienced a true emergency since creating an emergency fund, so I have no first-hand experience. I’d like to hear from anyone who has been through an emergency.

Note: There are some people who buck the trend and recommend not carrying an emergency fund of some sort. They are counting on never having an emergency or relying on credit (or generous friends or family) to get them through a rough time. They may never have an emergency, but it’s a dangerous proposition for which they could end up paying for years — much longer than if they simply took 3 to 6 months’ worth of expenses out of their high-cost investments and set it aside. This is not the type of risk that is good for long-term investing portfolios. With high interest rates for savings accounts, it’s really not such a bad idea to an emergency fund at least partially saved at HSBC Direct or a similar bank.

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The original version of this article, Reader Question: What to Do After an Emergency?, is copyrighted by Consumerism Commentary.

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Ryan Waggoner is an Associate Product Manager with CNET Networks, working primarily on GameSpot. He writes about entrepreneurship, real estate investment, and technology at ryanwaggoner.com. In this guest post, Ryan talks about his experience without a car in San Francisco.

My wife and I moved to San Francisco from Colorado about 10 months ago. We sold one of our cars just before we moved and took the other with us to SF. It was nice for a few months, as we were doing freelance work around the Bay Area, but after about 3 months of living here, we both got jobs within a couple miles of our house. At that point, the car began to look pretty expensive. Our parking alone was $235 per month. Throw in insurance, gas, maintenance, and depreciation and we were looking at close to $500 per month. So we sold it, giving us a nice little chunk of change to help pay off some lingering debt.

We’ve made some changes in our transportation life, including the following:

For commuting to work and running errands within a couple miles, we use the awesome public transportation options that SF offers. It does add a few minutes of waiting to our transit time, but it’s pretty convenient. We pay about $65 a month for two passes that let us use the buses, trains, and subways within the city.

For times when it’s raining, there’s not a convenient bus route, or it’s too late for the bus we need, we just take a cab. The city isn’t that big, so most cab rides fall between $5 and $10. We probably do this once or twice a week.

Since lugging our groceries onto the bus twice a month is a pain, we use Safeway.com and have our groceries delivered. For between $8 and $10, we go online and order all the groceries we would normally order and have them dropped off in a 4-hour or 2-hour window.

When we really need a car, perhaps to run an errand or to pick up something that isn’t practical to lug onto a bus, we use ZipCar, an awesome car-sharing service available here in SF. Basically, they maintain a fleet of cars at parking lots all over the city. When you join, you get an access card that unlocks the cars. If you need a car, you just go online or call to reserve the closest one. You pay about $9 per hour, which includes gas and insurance. It’s not practical for daily commuting, but if you need to run to Costco or IKEA once a month for a few hours, it works beautifully.

Overall, it’s been a wonderful change. There are still times when I wish we had a car, but in a city like San Francisco, it’s very practical to live without one. We cut our transportation expenses from about $500 per month to about $200 per month. I’m sure we’ll get another car at some point, once we value our time and convenience more than that $300 per month, but until then, we’re enjoying this chapter of car-free living.

For more on personal finance from Ryan Waggoner, visit his blog.

The original version of this article, Guest Post: Ditch the Car and Save a Bundle, is copyrighted by Consumerism Commentary.

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This is a guest post from Matthew Paulson. Matthew writes about money on his blog, Getting Green. While I save money on shaving by using water rather than shaving cream or gel, Matthew has another idea.

I noticed that my razor was getting dull the other day, so I did what everyone does and went to Wal-Mart and picked up whatever happened to look good at the time. I didn’t really think about the cost because it was something that I needed and would have to buy it anyway, but when I swiped it through the self-checkout line, those were some expensive razor blades. $11 for a set Fusion blades, ouch! I decided that there has to be a better way to shave without spending so much, so I did some research.

The first thing that you need to do is look for any free razor offers that you can. There’s no better price than free. You won’t find good free razors all the time, but quite often Gillette and Shick will offer free razors in hopes that you’ll stick with the brand and buy additional blades at a huge markup in the near future. If you have a few minutes of spare time, go over to Google and search for free razors, and see what you can find. Use a few different variations of your name to get a few free razors.

There’s the question of cheap razors versus the name brand razors to settle as well. I’ve personally noticed that a high quality Gillette razor blade will last about five times as long as the generic plastic razors with two blades. Usually I go for a name-brand because the disposable razors seem to have this nasty habit of cutting me and I don’t have to change razors nearly as often.

You can make your razors last longer if you take good care of them. If you shave in the shower, don’t leave your razor in the shower. Steam in the shower will cause your blade to become dull and less useful. If you can store your razor outside of your bathroom, you can nearly double the life of your razor blade. Be sure to keep them away from your wife or room-mate so they don’t borrow your razor.

If regular razors are the best option for you, don’t automatically go for the refills. Because the razor manufacturers want you to switch to their brand and razors, it’s sometimes cheaper to buy a new razor (with starter blades) than to buy refills.
In the same light, always take the free razor offers when available. When a new model razor debuts, it’s fairly easy to get these for free.

When you do have to buy new razor blades, changes are you can save a lot of money by shopping for razor blades on eBay. Even after shipping usually you’ll save quite a bit of money over heading down to the local big box store.

For more ideas for saving money, visit Matthew Paulson’s blog, Getting Green.

The original version of this article, Guest Post: Cutting Down the Cost of Razor Blades, is copyrighted by Consumerism Commentary.

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Sharon Harvey Rosenberg is a columnist for the Miami Herald. She writes about about saving money and the art of being frugal in her column as well as on her blog, The Frugal Duchess. In this guest post, Sharon writes about making the best choices in clothing through the concept of cost-per-wear.

It’s a cute black skirt from Ann Taylor Loft and it costs me about 53 cents every time I wear it. What’s more, as each week passes, the cost-per-wear declines.

I’m not delusional and my calculations are not a frugal fantasy. Here’s the bottom line: Quality garments are cheaper in the long run. Crafted from fine fabrics in classic cuts, most of my wardrobe pays me hidden dividends.

Here’s my closet matrix: The black skirt was originally priced at $60, then reduced to $34 (still too expensive for my budget). But I made my move to the cash register when the price dropped to $16. That was last fall and I have worn that skirt about 30 times (probably much more) since September. The current price-per-wear cost is 53 cents and by next September, I estimate that the price will drop down to 25 cents per wear. The skirt does not need dry-cleaning, an expensive process that dramatically inflates the total price and the price-per-wear figures.

I’m not the only one who makes this kind of calculations. In the book How to Say It For Women, author Phyllis Mindell also writes about price-per-wear calculations on page 175.

Here’s her example: One business woman buys a Liberty of London shawl in 1986 at Harrods for $100. She wears the shawl about 10 times annually, which translates into a “price per wear” value of under $1.

“Fine accessories represent a wise investment: They last, they say in style longer than clothing does, they offer the chance to exercise your individuality,” Mindell recommends in her book.

She advocates shopping for quality when it comes to briefcases, handbags, wallets and jewelry.That’s my model for shopping. And it’s a strategy that Flexo mentioned in an earlier post about being Pound-wise and Penny-foolish.

Of course, I’ve had my share of missteps. A few years ago, I was hired to fill in for a business reporter at the Herald, who was on maternity leave. She covered the retail (shopping beat), so I wanted to look especially spiffy while filling in for her.

That’s fine, but I made two shopping errors. I purchased two trendy shirts at a discount chain for teens. Who was I kidding? Big mistake. The shirts were low-quality garments made from a poorly made cotton/spandex fabric. Additionally, the trendy cut was a flavor-of-the-month variety that quickly melted out of style. Due to the inferior fabric, the shirts did not wash well. It was not my finest shopping moment.

The good news: I only spent $12 for each shirt The bad news: I only wore each shirt a few times and my cost per wear was about $4. Fortunately, I’m getting a lot of low-cost mileage from the rest of my closet.

But when is it best to splurge for an item and when is it best to pick-up the no-name brands? This guide from Real Simple magazine offers insights.

Tee shirts: Go for the super-saver, Real Simple says. Why? Tee-shirts are frequently worn and washed, which decreases the shelf life.

My experience: I prefer good quality tee shirts at low, low (end of season prices). The cheaper shirts don’t hold up well in the wash.

Hose: Save. Expensive or cheap, stockings run quickly, at least on my legs. Real Simple agrees.

Jeans: Shop for quality. Expensive jeans tend to fit better than cheaper counterparts.

To read more from Sharon Harvey Rosenberg, visit her blog, The Frugal Duchess.

The original version of this article, Guest Post: Quality Clothes for Less than a Buck, is copyrighted by Consumerism Commentary.

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According to BlogAhorro, ING Direct is offering existing customers 10% APY for one month. Here is a rough translation:

ING Direct has sent a letter to its customers offering a 10% APY for its Orange Savings Account for one month.

In order to qualify, make a deposit from any other bank before April 5, 2007. From the moment of deposit, all funds up to 10,000 euros deposited in the account will receive 10% interest APY for one month, after which it will return to the previous 3% APY.

I don’t see anything about the 10% APY on the information page for Spain’s Orange Savings. That leads me to believe this offer is only for existing customers. Otherwise, one could determine the probabiliy of the euro declining against the dollar over the next month and decide that it may be worth it to place funds in Spain’s version of ING Direct. They do seem to accept account opening applications from those living outside of Spain, but you may need to provide your passport number.

A 10% annual return on a maximum of 10,000 euros can net only about 83 euros over the course of one month. Right now, that’s worth US $109. Who knows how much will it be worth at the end of the 10% promotional period?

One commenter on BlogAhorro plans on taking advantage of the offer as soon as the letter arrives.

The original version of this article, ING Direct Offering 10% APY Promotion… In Spain, is copyrighted by Consumerism Commentary.

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Here’s a question I received from a reader regarding the Premium Certificate of Deposit accounts at Millennium Bank:

Have you ever heard of a bank called Millennium Bank? They are Swiss, not FDIC insured, and will give me 7.25% on a 1-year CD, which is not redeemable until maturity. I really want to do it, but I’m hesitant because they’re not American and not insured. If you’ve heard anything about them, I’m more than willing to listen.

I answered the question to the best of my limited knowledge. A deposit at Millennium Bank will likely be safe, despite not being insured by the FDIC. However, there may be hefty undisclosed fees for maintaining an account with the foreign bank as an American citizen. These fees would likely eat into the interest income.

If there are any Americans with experience with a Geneva-based savings account similar to the one offered by Millennium Bank, please feel free to write in with a comment below to describe your satisfaction, problems, and anything else you’d like to add. I don’t expect many readers to have this experience, but it never hurts to ask.

The original version of this article, Question from Reader: Swiss Bank Accounts, is copyrighted by Consumerism Commentary.

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