Monday, April 23, 2012
Money Monday: Saving, Part Two
As I was trying to fit the books my husband got for Easter on the bookshelf, I came across the book The Sound Mind Investing Handbook by Austin Pryor. My mother had given it to us a few years ago for Christmas or birthdays... can't remember. It was long enough ago that when I started to read it, I felt overwhelmed at our inability to even begin thinking about saving, more less investing!
Moving every six months and having your income and spending change that often too makes it very difficult to get a grip on finances, more so saving. Really, it felt like we were just spinning our wheels. The engine was running, but we weren't getting anywhere. I am so thankful our needs were always met and only once did we go in debt from an unexpected expense.
Now though, things are different. They are more stable; at least for this year they have been. We have been able, and are able, to save. At least some.
So I decided to take that book off the shelf to make room for the new books, and review the money book. He starts out the book answering the question, "What's my purpose in investing?" He says, "For the Christian, the answer is two fold: 1) to provide financially for the needs of your household, and 2) to increase your assets in order to serve God more fully." I'm on board with that.
I skipped to his chapter titled "Do You Have Adequate Savings?". The answer for us: no. So what do we do? Well, here's what I gleaned from the chapter, for us personally:
1) He recommends having a minimum of three months worth of living expenses and more ideally, six months. He said some people say $10,000. This money would be your contingency fund, as he called it. I prefer to call it emergency fund, like Dave Ramsey, because, currently, "contingency" is not really in my vocabulary. (I know, I'm no scholar!)
We have had a so-called emergency fund since we've been married and I read Dave Ramsey's book. He recommends starting with a $1000 and build as you are able. We have never really been over $1000 because something has always come up. This is a more realistic goal for us than $10,000, but we don't plan on stopping at $1000, of course. So there is one area we are, and need to continue, working on.
2) Austin Pryor suggests those in the 20's save 5-10% of their earnings. Check. I believe we are doing that. Our income is small, so it's not much, but we do believe it's better to save little than none. However, we are not putting all our savings into our emergency fund. From what we are able to save, and whatever extra we have for whatever reason, we split three ways: 50% to emergency fund, 25% to a second car fund, and 25% to a house fund. Since we are hopeful to buy a second car and home upfront, I felt very strongly that we should start saving now, before we even have a foreseeable need. And if we can't pay in full when the time comes, we at least have some to put down upfront.
3) He suggests putting your emergency fund in an account that where the money is immediately accessible and completely safe. Four places you can do that are banks, credit unions, money markets, and US Treasury Bills. Now a days, you get hardly any interest in a bank savings accounts, and even money markets are low. We had a money market for a few years, but our balance got so low they closed our account! Now, I think we would be able to maintain it (God willing!), but I'm not sure we have enough yet to open an account. Right now we have a Silver Savers account, since my brother got my husband into buying silver. I'm not sure how I feel about it, especially now that I know about the importance of it being safe. Silver is really something to invest in, but maybe not so good for savings, as its value can fluctuate a lot.
4) He also mentioned having an accumulation fund for major expenses such as a new car, furniture, or a remodeling project. This is money you can save for more than a year before you actually need it. He mentioned that investments would be a good way to go with this so maybe our car and house savings would be fine in a silver account, but our emergency fund in something safer.
So steps I want us to take in our savings:
1) Continue saving!
2) Look into a money market for safer savings.
3) Keep accumulation funds (car, house) in silver account to earn interest.