Friday, March 2, 2007

Buck Your Brick Bank For Bang For Your Buck, Part Two

Yesterday, I posted about one of the big benefits of some of the internet banks like ING Direct, HSBC, and Emigrant Direct: the big interest rates. At the end of the post, I mentioned that there are two more benefits that are whoppers for MLB and me. We certainly make the most of them.

My experience deals specifically with ING Direct, so I can't speak to what is available at some of the other banks.

So here are those additional big benefits:

1.) I can set up multiple sub-accounts within our Orange Savings Account, each with a different nickname and purpose. And, since they don't have a minimum balance or any other fees, I can have very small amounts or even no money at all in them without penalty. This is important to me because I can have different small savings accounts (at the great 4.5% rate), each saving toward a different goal.

2.) I can set up automatic savings plans (ASPs) for each sub-account. What this means is that I can have ING Direct pull an amount of money from my checking account at a regular interval of my choosing. For example, I can have $20.00 pulled from my checking account and put into a savings account every other Friday, if I'd like. This is vital because it's completely automatic. That means I don't have to think about it, which means that I won't ever forget to do it, which means I always stay on track. Another reason this is important is because it creates a state of artificial scarcity in my checking account. That helps me to adapt quickly to the smaller amount of money that is readily available, and I spend less. That's vital because I can't waste what I don't have.

You're probably asking, "So how do I make this work for me?"

Well, MLB and I currently have eight savings sub-accounts. Yes, Cowboy Troy, you read that right; we have eight savings sub-accounts. We have an emergency fund, several short term holding accounts, and a couple long-term savings accounts. Basically, this is the way we make it work for us: our paychecks are deposited into our checking accounts every two weeks, or twice a month. This is our main holding area. Throughout the month, money is pulled from these checking accounts into the various sub-accounts. The amount and timing of these withdrawals varies with the sub-account, typically in three different ways for us.

Savings Technique #1: We make small deposits in regular intervals for our emergency fund.
Basically, every two weeks (or whatever interval we chose), we deposit an amount from our checking accounts, thus funding our emergency fund a little each time. Since this account is for emergencies (NOT a big LCD TV), we won't draw from this account unless we absolutely need to. This is a very important account because it ensures that a short-term emergency doesn't derail us from our long-term financial plans.

Savings Technique #2: We make small deposits in regular intervals for long-term savings.
At regular intervals, we deposit an amount of money into what we call our "future kids" and "forgotten money" funds. The "Future Kids Fund" is set up for future children, since they're so stinking expensive. Things like day-care, private school, and size 4 Air Jordans, will eventually come out of this account. Note that this IS NOT a college savings account. We've got a separate 529 account for that, which is invested in the stock market. The "Forgotten Money" fund is basically for whatever we decide to spend it on. That big LCD TV or big donation to an un-named dance organization might come from this account.

Savings Technique #3: We make deposits in regular intervals for short-term holding.
Aside from the emergency fund, this is probably the most important savings tool for us. These accounts are short-term holding areas for bills and events that happen on a regular basis, but not monthly. We've currently got one for insurance, vacation, holiday gifts, and a couple others. These accounts are the reasons we're never surprised or thrown off by semi-annual or annual bills. Throughout the month, we automatically put small amounts of money into these accounts, so they grow slowly behind the scenes. Then, when a big bill is due, we pull the money out and pay it from that account. For example, we pay our insurance (auto, liability, etc.) every six months. If we expect our 6-month bill to be $600, we'd put $100 a month, or $25 a week, into the account. That way, instead of getting that big bill in December or January, and then worrying about how we're going to come up with $600 for it, the money is already there! It's a lot less painful paying $25 a week for six months than to come up with $600 all at once. Plus, the money's been earning interest for us throughout those six months.

We do the same thing with holiday gifts. We each put $10 a week into the account, and when December rolls around, we've got over $1000 ready to go for gifts. And, since it's such small amounts at a time, we don't even miss the money! It works beautifully for us.

So, how do you start? Check out for a huge list of high interest savings accounts. Pick one, sign up and transfer some money from your checking account. Don't forget to set up an automatic withdrawal plan so you can slowly grow your savings without much pain. And, if you want a referral for ING Direct (you get a $25 sign up bonus if you use a referral), just leave a comment with your email address, and I'd be more than happy to hook you up.


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