PocketCoinage.org

The emergency fund is probably the most important savings account.  Think of it as self-insurance.  You save for an unforeseeable event: loss of income, furnace goes, or the roof springs a leak.  So how much do you need to keep in an emergency fund?  It all depends on your comfort level and what you are saving for.  You may even want to have different, targeted, emergency funds.  Some people recommend saving for at least 6 months of expenses.  Personally, with everything going on in the world, I would save for at least 12 months of expenses.  This will give you some flexible time to look for another income.

My current emergency fund is for anything at this point in my life.  Once I reach my ultimate goal of $20,000, I will set this account aside and name it the “Loss of Income Fund”.  The $20,000 will keep my current lifestyle afloat for about a year.  I may even open short-term CDs to make some more money rather than letting it sit at a lower interest rate.  To keep my savings on track, I could direct the money a few ways:

• Keep putting money into the “Loss of Income Fund” after I reach my goal
  • Every $1,000 I go over my goal, a 1-year CD gets opened
• Create a new emergency fund targeted towards another goal
  • Maybe an “Emergency Home Repair Fund”?
• Send it to another savings account for non-emergencies
  • Vacation fund
  • Auto fund
• Save more towards my Roth IRA

I also use my emergency fund for when I overspend on my credit card the previous month.  I refuse to maintain a balance on my credit card unless I have no other choice.  Most of the items are unforeseen expenses and this is where it is very nice to have a fund to tap into.

Do you have an emergency fund?  How do you use it?

This is the third in a series of weekly posts titled “How I Did It”.  I’ve been so inconsistent with the weekly postings, I’m not sure that I can call it a weekly series.  The past week has been very unusual with two blizzards and getting stuck overnight at work.  I will try my best to post on a weekly basis. Throughout this series I will be describing my methods of personal finance, frugality, and what it took to get where I am today.

If you’ve read the series from the beginning, you’ll notice that I received my first credit card when I opened my checking and savings accounts.  This was around 2004 when they were giving credit out like free pancakes at the diner.  To recap, my local bank offered me a credit card.  I was hesitant at first and I asked a few of questions that were important to me:

• Is there a monthly/yearly fee associated with this card?
  • No
• Does it cost anything to apply?
  • No
• What’s the benefit of holding this card?
  • Reward Points: 1 point for every dollar spent
• If the card it paid off every month, will I incur a finance charge?
  • Not unless cash advances are made

Once I had the questions answered, I sat and thought about the positives and negatives of holding a credit card.

Positives

• Building a credit history at an early age
• Have it in case of emergencies
• Order items online without too much worry; It’s not linked to my checking account
• Ability to reserve hotels and rental cars without putting a hold on my checking account

Negatives

• I could slip into debt if I did not think about my spending.
• Someone could steal my card number and use it.
• The company could change my terms of agreement at any time.  If I did not pay attention to the changes, it could cost me in fees.

After careful consideration, I decided that the pros outweigh the cons and I went for the credit card.  About a week later the approval letter arrived in the mail.  The credit limit: $500; not too bad since this was my first card and I haven’t held a job for too long.

Using this card responsibly, every month, opened up another door from my local bank.  About two years later, they were offering me another credit card.  After reading their terms and talking with the local representative, I decided to go for it.

The advantage of this card was:

• It was from the same company as my local bank
• It had a better rewards structure
• A higher credit limit

Now I had two credit cards in my name from the same bank.  A few weeks later I understood what their reasoning was.  I received a letter in the mail about how my first credit card company was separating from my local bank.  I believe the local bank wanted to keep me as a customer.

In the end, I am glad I signed up for these credit cards.  It’s been 5 years since my first card and I’ve had a great experience ever since.

By making this small first step, I was able to build my credit history at an early age.  Keep in mind, I always pay my cards off.  It does not make any sense to leave a balance on them.  You’ll never gain back the money in interest payments through a savings account.  If I overspend, I tap into my savings account to pay it off.  Yes it hurts, but it hurts less than owing more money in interest.

Automating your life can make things a lot easier.  A great example is the morning coffee.  You prepare it the night before and set a timer.  By the time you awake, the coffee has already brewed and is ready for your enjoyment.

The same thing can be said for savings; set it up and enjoy!  Automating your savings can get you on the right path to retirement, vacation, college, emergency fund, or whatever you have your mind set on.

Automation Through Your Employer

Probably the best way to automate your savings is through your employer.  Like most companies out there, they probably offer direct deposit into a checking account.  If you talk with them, they may be able to divide up your pay into multiple accounts by a fixed amount or a percentage of your salary.  By doing this, you can put away regularly without thinking about it or “seeing it” in your check.

Automation With Your Bank

You can also automate transfers with your bank.  My bank, ING Direct, has the option of automating a transfer from a checking account to a savings account.  This is another great way to save money without thinking about it.  It’s also an alternative if your employer does not offer the ability to send your pay to multiple accounts.  It also gives you a little more control over your money.  For example, you can login and change the amount at anytime.  With your employer, this change could take a few pay periods to kick in.  Plus, you may get a regular check instead of a direct deposit while the changes are processed – this is a huge inconvenience for me.

The only downfall to the automatic transfer with your bank is the risk of inadequate funding.  For example, my employer normally deposits on every other Thursday.  If a holiday falls on a Monday of that pay period, the deposit does not get made until Friday.  If I do not time the transfers accordingly, I could end up incurring non-sufficient funds (NSF) fee with my bank. This is something I avoid doing like the plague!

What I Do

Personally, I only automate 403b transfers direct from my employer.  Every pay period I sit down and transfer the money where it needs to go.  This gives me a better understanding of my money and where it goes.

However, I feel the best way to automate would be to have your employer make the deposit for you.  This way you avoid the NSF fee and you don’t “see” the money.  By having my employer deduct my 403b, I do not “see” how large my check would be.  Over the course of two years, I have a decent amount put away for retirement and I do not miss it in my check!

If I decide to automate my savings, I will allow my employer to make the transfer over my bank’s automatic transfer.

Do you automate your savings?

Remember, you can contribute to your Roth IRA for 2009 until April 15th!

I have yet to contribute anything for 2009.  Quite frankly, I’m upset that I did not put anything in at this point.  However, it’s been a big year for me: buying a house and paying off the car.

Over the past 2 years, I have contributed the maximum amount to the Roth IRA.  With the most recent economic crisis, that $10,000 turned into less than $5,000.  Within a few months time, I lost one year’s contribution.  I guess it could have been worse; I could have lost it all.  Since then, I traded in the Global Real Estate for Global Bonds and opened a Roth IRA Savings account with ING Direct.  Probably not the best choice to regain my money back.  The Global Bonds (IGBOX) are only up about 7% compared to 29% with Global Real Estate (IDGTX).

I think the recent events with the market and buying a house made me realize my true risk tolerance.  I do not like losing money – especially when I see what I put in and lost.  For some reason, I feel differently about my 403b.  I think it’s because it’s deducted bi-weekly and I don’t “see it” except on the quarterly statement.  I still have yet to compare all the statements to see what I have really lost.

However, it’s good to have a balance of funds.  I think I will keep my 403b on the aggressive side and make my Roth IRA fixed with savings, CDs, and bonds.  The market took a large hit in the past week and I do not think we are out of the water yet.  Remember, bonds are more attractive when the markets go south and are less attractive when the markets rise.

I should have a plan for my 2009 Roth IRA by the end of the month.

It’s early February and spring is right around the corner; even though Milltown Mel predicted six more weeks of winter!  I already placed a seed order with Park Seed and I will need sow some of them indoors by the end of the month.  The last day of frost for Central New Jersey is approximately May 15th.  Starting certain seeds indoors, such as tomatoes, will yield crops earlier.  I plan on using my sun porch with a seedling heat mat to start things off.  Last year I did it without the heat mat and had great success.  However, it was nothing like a hot house!

Last year I build a raised bed with my dad to plant tomatoes, peas, spinach, and radishes.  It is a 16′ x 4′ full sun garden, surrounded by deer netting, that produced a lot of vegetables!  This year, I want to try Square Foot Gardening to make better use of this space.  Square Foot Gardening involves creating 1′ x 1′ squares within your raised bed.  The concept here is you can make more efficient use of the space when you break it down into smaller plots versus having a large one.  For example, you can fit one tomato plant per square foot and about twelve onions (depending on type) per square foot.  The raised bed we built last year is approximately 64 square foot.  In theory, I should be able to make 64 separate gardens and rotate them accordingly.  So if I wanted to, I can plant 64 tomatoes or 768 onions!

This year I want to build a few more raised garden beds.  Instead of making one long one, I would like to make multiple small ones.  This way, it will be easier to tend from all sides.  It was a big pain in the neck to walk through the tomatoes last year.  I’m thinking about making them 4′ x 4′ or 16′ x 2′.

I will have more updates once I start the seedlings and build the raised beds!

Alice is a website that allows you to save time, money, and emergency trips out for toilet paper.  They were founded on the idea that you’d rather do other things besides waste time at the store.  They say that the average Alice customer saves 30 minutes per week. I can think of many things I can do with that extra 30 minutes, like become more self-sufficient.  Alice holds your shopping list online, has competitive pricing, price comparison, automatic coupons, reorder alerts, and free shipping!

I found out about Alice through an advertisement on another blog.  I checked it out and decided to give it a shot – I had nothing to lose.  I discovered that I not only saved time, but money as well.  What sets Alice apart from other sites is the price comparison, reorder alerts, and free shipping; with free shipping being the biggest benefit in my opinion.  You do not need to buy in bulk to save, but you do need to order at least 6 items.

The website layout is like a store shelf.  You can search for a particular product or just browse aisles.  Once you found your product,  you can perform a price comparison, see if there are any automatic coupons, browse reviews, check out ingredients, read the item’s description, add it to your order, or save it to “My Products” to purchase later.

I placed my first order with them a few weeks ago and it arrived in three days.  I ordered a variety of items including: super washing soda, borax, shampoo, conditioner, deodorant, and a few bars of soap.  The items came nicely packed and everything intact.  The powder cleaners (this even happens when I go shopping myself) seemed to have leaked all over the other items; It was nothing a dust rag couldn’t handle.  I sent them an email with the problem and a possible suggestion to resolve it.  They customer service representative emailed back and passed the suggestion over to the shipping department.

Just adding the additional time to my schedule will be invaluable.  I am hoping to use this time to be more self-sufficient, write more content for my blog, or be more involved in the community.

If you are interested in Alice, please click on the banner below and sign up for their service.  You will get a $10 credit once you spend $50 and I will get 3% of all the sales for an entire year.  Once you sign up, you can also refer friends and family!

Have you tried Alice?  Are there any other sites out there that are similar?

April 15th, 2010 is right around the corner.  I’m in the process of gathering everything I need to bring to my tax advisor at the end of the month.  This is the first year that I will be claiming my home and I’m looking forward to see what my return will be like.  I already made an amendment to my 2008 taxes and claimed the First-Time Homebuyer Credit.

As of right now, I am looking to write off the following:

House Related:

• Mortgage Insurance Premium
• Mortgage Interest
• Mortgage Points
• Real Estate Taxes
• Closing Costs

The 1098 form sent to you by your mortgage broker will have the insurance premium, interest, points, and real estate taxes.  According to Bank of America, “… you can typically deduct the real estate agent’s commission, attorney’s fees, surveys, title searches, and transfer taxes.”  I am hoping that this is the case.

Work Related:

• Home Phone
• Internet

Since I am an essential employee of the hospital, I am on-call every other week and need to be accessible.  The organization does not provide me with a phone or Internet.

Don’t forget, you can also write off:

• Auto Loan Interest (new vehicles only)
• Donations
• Education
• Medical Bills
• Student Loan Interest
• Union/Professional Dues

That’s just a handful of the items available for deduction.  Check with your tax advisor to see what you are able to qualify for.  Some items have a cap on what you are able to earn.  Once you reach that cap, you become ineligible to deduct that item.  I personally reached this cap with deducting student loan interest.

What are you looking to deduct this year?  Have I missed anything?