Step Two: Begin To Reward Yourself!

Make Your Emergency Fund Work

Greetings again! It appears that things continue to look up for me as I continue to fund my own emergency fund and should reach the pivotal $10,000 mark by December 30, 2006 if I save conservatively and plan to spend money on health, entertainment, and food. The benefit of the spending plan will show you if you’re doing a good job of plugging the holes in your monthly expenses drains while identifying areas to improve spending.

Living in New York is expensive especially on my entry-level engineering income, but that simply means that I will have to plan my spending a bit more conservatively than most. Soon, I’ll no longer be here. It’s almost been a year, but I’m hanging on OK. I don’t see what’s so hard about this living below my means stuff. Perhaps in the future I will have my Financial Tower threatened. We’ll see.

But to today’s topic—what to do with that emergency fund money?! Hopefully it’s not sitting in your checking account. If it is, you’re punishing yourself. If you’ve decided to delay gratification and are committed to saving for emergencies, why not make that money gain some interest—and I mean REAL interest! Or maybe you have your money in high-interest savings already. If so, you can stop reading now! I’ve put some of the well-known savings account brick-and-mortar guys to the others:

Bank Name	Savings Account APY%	Money gained per $1000 saved*
Wachovia	0.35%*	$3.50
Washington Mutual	0.75%*	$5.50
Bank of America	0.55%*	$5.50
ING Direct	4.00%	$40.00
Emigrant Direct	4.50%	$45.00
HSBC Direct	4.80%	$48.00

*Up to 2,500. After that, there are marginal increases. This is fine print. Some assembly required.

Well, where do you stand? Look at the return rates. Keep in mind that this is the money you get for saving per thousand, per year. So if you save 5,000, multiply the interest dollar amount by 5. (This does not count reinvestment interest, where you money can really take off). But what if you don't HAVE $1000? Not a problem. The online banks have no minimum and no fees. So you can start with $1.00 or $100. Not too shabby for the Online Banks, eh?

Now, which one would you opt for? For simply letting your money sit there and accumulate interest, you can get a fairly decent rate that’s FDIC-insured. (This means that your returns are guaranteed.) This is the amount in cash you would have after letting it sit for one year—and it should sit—remember this is your emergency fund. Emergencies as in “the car broke down and I cannot pay for repairs out of my checking account without using the credit card,” but not “John Legend is performing and I cannot pay cash/debit for it without going into credit card debt.”

Always seek to maximize your returns—let your money do it for you. I suggest you start with the bottom three, and each has its own strengths/weaknesses. ING Direct is most user friendly. Emigrant Direct has usability concerns, and HSBC Direct has the highest rate, but they will make you jump through hoops to get started. Remember. This is your money. You worked hard for it. Now make it work hard for you.