Saving for an emergency

6355836713_0fbe511113_o_lgCreative Commons Money on Money” by 401(k) 2012 is licensed under CC BY-SA 2.0

Emergencies happen when you least expect them so it’s better to plan ahead and tuck away money into an emergency fund to be better prepared. Like Dave Ramsey said, “Once you have your emergency fund in place you tend to stop having emergencies.” So the goal is to prepare and build up your emergency fund to accommodate at least three to six months worth of your expenses.

To help keep me aligned with my goals I opted for an online interest checking account. I considered an money market account (MMA) but those are limited to six withdrawals. I don’t expect to have more than six emergencies arise in the course of a month but this gives me peace of mind knowing that there is no limitation. In the event I do have more than six emergencies I know I won’t incur any penalties for additional withdrawals.

I setup two automatic drafts to pull a specified amount from my primary checking to my online checking account. I carefully scheduled the drafts around my the time I receive my direct deposits. At the end of the month once I have gone through the budget I manually transfer another said amount to my online checking account. The automatic drafts are more of “out of sight out of mind”. My employer doesn’t have the option to split my direct deposits into two transaction otherwise I would have opted for that route. I also have it setup that any bonuses will direct deposit to the online checking. The same goes for any tax returns.

I have the online account for two specific purposes. One obviously is for the emergency fund and two a short term savings. The savings is to tackle my $55K Sallie Mae note which I anticipate paying off by July of 2017. With the money I save from paying off my school note I’ll roll that into the contributions I make to my online checking account and build up the funds to pay off my mortgage which should be approximately three years later. The interest generated isn’t significant but some is better than nothing and every bit helps.

They key is to stay motivated so I have written down the emergency fund total on a dry erase board along with the date that in which it should be fully funded. This hangs near my bed so I see it every day. I drafted a spreadsheet with dates, savings contribution amounts, rolling totals and the target dates which is accessible on my smartphone. I use a lot of methods to help keep me focused and they serve as daily reminders of the bigger goals ahead of me.

Taxes have been filed

I’m one of those people who likes to address tax season as soon as I have all my ducks in a row. I don’t like to let it linger to far into February if I can help it but by the end of January is my primary target. Thank goodness that a lot of companies have switched to paperless delivery. This makes being organized that much better. Being on a first name basis with your tax accountant doesn’t hurt either. As soon as I had all the documents, receipts, spreadsheets, etc… I merely emailed them to Rita and by the end of the day on Friday all I needed to do was to show up and sign.

I switched up the way I deal with our withholding. Before, like many others, I would contribute the max which would later yield a sizable tax return without bearing interest. Being a bit more smart about money in general and knowing the power of compound interest I aim to break even at the end of the year. A small return is better than having to pay so I work with my account to make sure my tax goals are aligned before the end of the year. This makes more money available on a monthly basis which allows me to take advantage of interest benefits from other investments. I see it as some interest made is better than none at all.