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g'bye 2008

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Howdy hoo. It's the end of a bad economic year and the start of a worse economic year. At least gas is cheap.

And on an economic note, here's my own helpful way that I budget myself. This is pretty far from a "be like me" blog, so I ain't gonna say that it works brilliantly for everyone. It has, however, worked well for me for the past couple of years.

First off, you need a savings account. Savings accounts at your local bank are easy and plentiful and pay basically nothing. I remember a few months ago I got a call from my local bank telling me how very responsible it would be for me to get myself a savings account so I could earn interest for the future. The conversation went like this. . .

Bank: Now's the time to get yourself a savings account with us so you can save for your future.

Me: So, what's the interest rate?

Them: Umm. . .[voice gets very quiet]. . .zero point two five percent APR.

Me: So that means that if I keep a hundred bucks in the account for a year, I'll make twenty five cents.

Them: Yeah. . .rates are kinda low right now.

I don't think they're selling savings accounts right now. Thankfully there are some good online savings accounts that pay reasonably well and can probably beat your bank's rate for CD's.

for the uninitiated, a CD is like a savings account but you can't take your money out until an agreed-upon term expires or you forfeit your interest (i.e. "substantial penalty for early withdrawl"). They have higher rates than savings accounts, but not much nowadays.

If you check out the money blogs, you'll find quite a few different online savings accounts, some of which will give you a bonus of $25 or $50 for opening an account, which is pretty cool. Just make DAMN SURE that whatever account you open is FDIC insured. With the number of dodgy investment accounts going under in spectacular fashion, there's a bit of comfort in knowing that if the bank goes teats' up that you'll get your money back.

Myself, I have online savings accounts with EmigrantDirect (2.75% APR) and DollarSavingsDirect (4% APR). They're actually the same bank, but they decided to open a new web-presence with a little higher rate to get some new customers. Note that those rates I quoted above aren't fixed and will likely drop. When I opened the EmigrantDirect account three years ago, the rate was 5%. Still, it's probably better than you'll get from a brick-n-mortar bank.

Again for the uninitiated: The APR is the Annual Percentage Rate, and it's a sneaky trick that banks use to make their interest rate seem a bit higher than it actually is. Since you earn interest on your money and also the money that you made from keeping the money in the bank, you will effectively make a little more money after a year than the interest rate shows. So banks post that rate instead.

The internet savings accounts are really easy to use and you can link 'em up to your checking account so you can move money back and forth via the web.

So what I do is I take all the really big fixed expenses I know I'll have in the course of a year, specifically:

  • My HSA (health savings account, which was a piece of slight-of-hand that the administration introduced a couple of years ago to make really crappy super-high-deductible health insurance slightly more attractive by allowing you to put the "unless you get hit by a bus, you're paying out of pocket" deductible amount into a tax-free account so at least you're not getting taxed on the outta-pocket amount).
  • Maggie's school tuition (She goes to a private school. This is Texas, 25th in the nation in quality of schools. 25th out of 50 is pretty-much the textbook definition of "mediocre", so we send Maggie to a private secular school.)
  • Shelly and my IRA's (We're self-employed, so we fund our own retirement. And I moved all of our money into insured funds in March right before the collapse. Yay me.)
  • Car Insurance (We have USAA which bills us every six months so we have plenty of warning.)

And I add those all up, divide by 12, and deposit that much into the internet savings account at the first of every month. If an expense turns out to be higher or lower than expected, like if the IRA minimum goes up like it did in 2008, I recalculate and adjust for it during the year.

Putting it in the internet savings account does a few things for us.

1. It makes the money just inconvenient enough to retrieve that I won't be pulling out a check or debit card if I see something shiny. It'll take a day or two to transfer so I have a nice "cooling off" period.

2. The money is available if there's an emergency. If the transmission suddenly decides to fall out of my car, the money's not out of reach. If I deposit the money in the IRA on a monthly basis, the money's still available but it's a real hassle to get and I have to pay the money back. If I find myself so cash-strapped that I need the money and can't pay it back, I have that luxury with the savings account.

3. The money earns interest during the year leaving a nice little "tip" in the account at the end of the year that I can spend on something nice like a trip to a restaurant with the family.

So basically I just figure out what big expenses I have, when I need to pay 'em, and I make up a payment plan into the savings account. I post a little google calendar event at the first of every month telling me how much I need to put in. And, with a little luck, I have enough at the end of the year to handle the big expenses and I don't find myself scrambling to pay off big expenses all at once.

Yeah I know. Common sense. Still, it requires some self-discipline.
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