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While everyone knows how important it is to have savings, it can sometimes be impossible to get through the month without dipping into them.

With interest rates so low, it is undoubtedly a better idea to use savings than to take on extra debts such as credit cards to pay for essentials.

But the real question remains, are there alternatives to constantly spending money from the savings account in order to have enough money to survive?

The first step may sound obvious but few people take the time to do it properly and that is to plan a budget.

Sit down and write out your household expenditure and work out where you are wasting money. Looking at the last three months of spending from your checking account can be a good way to work out where the dollars actually go.

Once you have identified any areas where expenditure could be cut out, the next step is to make some savings.

Research has shown that most people are not very good at shopping around to get the best deal; once they have signed up with an insurer for example, they tend to stick with them at renewal.

Switching insurer or even changing to online shopping with a cheaper grocery store can bring considerable savings yet few people bother because of the effort involved in researching. A quick way to bring some of the best results is by using comparison sites to find the best deals.

Many experts recommend paying for everything with cash rather than charging it when you are trying to save money. This is a great idea as it helps give you a better idea of how much money you are spending but sometimes, a credit card can actually save you money.

This may sound like a contradiction but using the right kind of credit card could end up not costing you a cent and actually earn you money or bring savings.

Shop around the market and find a credit card that offers good rewards that would be useful with either cashback or discounts at your grocery store for example. These are things that would save money on basic living essentials rather than luxury items such as cheaper vacations or flights.

Once you have your card, use it for everything you can that month. Charge everything rather than paying cash. Just keep track of how much you spend and don’t go over budget.

When the bill arrives, pay it off in full so you do not get charged any interest. The money you have spent on your card will quickly earn you discounts or cashback, depending on the card you chose and as you paid the bill in full, you will not have any interest charged. Hey presto, you have a credit card that actually bring you savings!

The other way to protect your savings is by increasing your income. Is it possible to get some overtime at work or help out another department to earn some extra dollars? You could also think about taking on a small part-time job in the evening or weekend; this will help pass the time without spending money as well as providing more income.

Another option to boost your income without taking on more work is by selling unwanted items you may have around the home. Try advertising in the local paper, have a yard sale or even sell them online. One man’s junk is another man’s treasure and this not only de-clutters your home but also boosts your savings with the minimum of effort.

There is no escaping the fact that these are tough financial times and many Americans are finding it difficult to survive on the money in their checking account.

While everyone knows how important it is to have savings, it can sometimes be impossible to get through the month without dipping into them.

With interest rates so low, it is undoubtedly a better idea to use savings than to take on extra debts such as credit cards to pay for essentials.

But the real question remains, are there alternatives to constantly spending money from the savings account in order to have enough money to survive?

The first step may sound obvious but few people take the time to do it properly and that is to plan a budget.

Sit down and write out your household expenditure and work out where you are wasting money. Looking at the last three months of spending from your checking account can be a good way to work out where the dollars actually go.

Once you have identified any areas where expenditure could be cut out, the next step is to make some savings.

Research has shown that most people are not very good at shopping around to get the best deal; once they have signed up with an insurer for example, they tend to stick with them at renewal.

Switching insurer or even changing to online shopping with a cheaper grocery store can bring considerable savings yet few people bother because of the effort involved in researching. A quick way to bring some of the best results is by using comparison sites to find the best deals.

Many experts recommend paying for everything with cash rather than charging it when you are trying to save money. This is a great idea as it helps give you a better idea of how much money you are spending but sometimes, a credit card can actually save you money.

This may sound like a contradiction but using the right kind of credit card could end up not costing you a cent and actually earn you money or bring savings.

Shop around the market and find a credit card that offers good rewards that would be useful with either cashback or discounts at your grocery store for example. These are things that would save money on basic living essentials rather than luxury items such as cheaper vacations or flights.

Once you have your card, use it for everything you can that month. Charge everything rather than paying cash. Just keep track of how much you spend and don’t go over budget.

When the bill arrives, pay it off in full so you do not get charged any interest. The money you have spent on your card will quickly earn you discounts or cashback, depending on the card you chose and as you paid the bill in full, you will not have any interest charged. Hey presto, you have a credit card that actually bring you savings!

The other way to protect your savings is by increasing your income. Is it possible to get some overtime at work or help out another department to earn some extra dollars? You could also think about taking on a small part-time job in the evening or weekend; this will help pass the time without spending money as well as providing more income.

Another option to boost your income without taking on more work is by selling unwanted items you may have around the home. Try advertising in the local paper, have a yard sale or even sell them online. One man’s junk is another man’s treasure and this not only de-clutters your home but also boosts your savings with the minimum of effort.

Health Care

Obesity can lead to a variety of high-risk health factors including high blood pressure, high cholesterol, and joint erosion. Those suffering from obesity are also more likely to suffer from heart attack and stroke, and be more prone to other forms of heart disease. To reduce the likelihood of high health care premiums and high medical bills in the future, stay within the healthy weight range for your sex, height, and age.

Food

Many who are overweight eat out at least once everyday, and eating out just once a day can quickly add up. “If you are someone who chooses to go out for lunch every work day to escape the office, you could easily be spending $50-$60 a week, or $200 to $240 a month, on lunches alone which is more than enough to cover the cost of groceries for personal breakfasts, lunches, and dinners for a month,” says Charles Bulger from Currencies.com. Instead of eating out, cook for yourself or bring your lunch to work. Your waist will shrink while your wallet will remain fat.

Clothing

Larger clothing costs more because more fabric must be used. Clothing for larger individuals also requires special tailoring and unique designs which also make it more expensive. If you have excess weight, shedding those extra pounds to fit the your body type’s healthy weight will not only make it easier to find clothes, but will also make them cheaper.

Losing weight has numerous short and long term financial benefits, and if you want to start saving additional money each month and are overweight, you should consider starting a healthy diet and exercise program. Doing so will not only help you add years to your life, but it will also help you keep money in your wallet which can be invested to enjoy the extra years you will have added to your retirement.

People give all kinds of reasons as to why they haven’t got money set aside for the proverbial rainy day. Many of these excuses are based on myths, an idea that gets into the national psyche and sticks, but they are not all true.

Many people have convinced themselves that they simply can not afford to save, that each and every dollar coming in their next pay check is already spoken for.

It is quite likely that even those on the most modest incomes can, with a little creative budgeting, afford to save something. For instance, do you really need that extra large skinny cinnamon latte every morning?

If you enjoy a special cup of coffee every other morning instead of every day you could make a significant saving over the course of a month, money that you could be saving. You may also find that it becomes more of a treat and you will enjoy it more!

It is a common misconception that saving money in this way means you have to deny yourself things that you value and enjoy. You don’t have to go without to save, you don’t have to sacrifice completely the things you enjoy, but just take a measured look and re-evaluate.

One myth that puts people off saving is the one that dictates that you should save 10% of your monthly income.

If you can afford to save 10% then great, but this will not be the case for many of us. Save what and when you can is the best advice.

Debts, whether they be loans or credit cards are an expensive business and consider how much interest you are paying.

Interest itself can run in to the thousands, thereby increasing the overall cost of an item. If you are able to purchase large items such as a car or sofa with cash you have saved, you could save a small fortune.

You don’t have to have a lot of money to invest to kick off your account. These days, accounts can be opened with relatively little money and some accounts can be opened with as little as $1.

It is also not true that saving money means that it is tied up and can not be accessed in an emergency.

Not all banks charge penalty fees for accessing your cash. Shop around and select the account that is right for you.

There are many people who look at the value of their homes and other assets as an investment for their future.

It is worth bearing in mind that property values fluctuate and there are many circumstances, some beyond your control, that will affect the value of your property.

Saving money is easy, but many of us have just gotten out of the habit.

So now is the time to start factoring in an amount to your budget each month and start making it a habit again.

Asset Accumulation

This phase is the starting up stage in the economical journey. It usually commences whenever a particular person enters the workforce, involving the ages of 20 to 25. The starting of this phase is characterized by restricted money for investing, a quite higher volume of financial debt, along with a very low net worth. The debts could come from college loans, automobile loans, credit card financial debt, or all three and much more. Considering that there aren’t a large level of assets owned by the individual, there’s normally not significantly imagined offered to economical pitfalls that exist.

But as a man or woman progresses through this phase, additional cash is accessible for investing, the quantity of debt like a proportion to their assets decreases, and their net worth rises steadily. Two with the most typical assets men and women wish to accumulate with this phase are a vehicle plus a property. This phase usually lasts until finally the age of 50.

Conservation and Safety

This phase begins after the person has acquired a number of assets, when the man or woman reaches their late 30′s or 40′s. For the duration of this season, the particular person has additional enhanced their net worth and lowered their proportional use of financial debt. Now, as people assemble up more assets, they usually develop into much less tolerant of risk. Alternatively, they are more involved about losing what they’ve gained than on getting much more. They are additional concerned with pitfalls that they could not have thought to be for the duration of the asset accumulation phase. These include, but will not be restricted to, the dangers of untimely death, unemployment, and long-term disability. As such, they start to take into consideration the should protect themselves from these hazards by buying the appropriate forms of insurance coverage.

Some people may possibly truly nonetheless be inside the asset accumulation phase as well, attempting to accumulate far more although hoping to not get rid of what they’ve obtained. This phase typically lasts for your entire time that the individual remains while in the workforce. And for many people, this phase may well previous for his or her whole lifetime.

Distribution and Gifting

This is the last of your 3 phases, and starts whenever a particular person has recognized that they can manage to devote on points that they’ve in no way believed achievable. Heading with the two preceding phases productively can make this phase feasible. For some, this phase may start as early because the late 40′s.

Sizable investments, reduced debt, and also a high net well worth characterize this phase. Folks in this period commence to feel monetary pressures declining, and look to get pleasure from their lives additional. Life insurance coverage premiums could be dropped and other deductibles could be raised. With their built-up prosperity, these people could contemplate paying for his or her grandchildren’s college tuition and going on expensive vacations. They could also go to more generally with the estate planner to plan the last decades of their lives and the subsequent transfer of their prosperity.

So what period have you been in right now? Do you’ve any desire to achieve the next phase? In that case, what actions are you taking to produce this take place?

The credit boom of the late-1990s and early-2000s precipitated a cultural shift in how people thought about money. It seems hard to believe now but credit was so readily available during this period that people would simply take out a loan or credit card to pay for the things they wanted, and worry about the payments later, whereas they would previously have put money to one side to save up for these things.

And so the idea of saving has become something of an alien concept to many but, given the rise in unemployment and the fact that lenders are no longer lending so readily, having an emergency fund has never been so important.

So if you are in the fortunate position whereby you can put money aside each month then you should be putting some into a ‘rainy day fund’ in case the worst should actually happen and you lose your job, have to go through a divorce or are hit by some other personal disaster.

Follow these three simple steps to successfully save for a rainy day:

1. Budget

Before you can start putting money to one side it’s important to know just how much you can afford to save. This is not only important to ensure that you do not put too much or too little in each month but also because it will give you a clear idea of just how long it will take you to reach your savings goal.

When creating a budget it is important to factor in everything you spend during the course of the month and you also need to break down and include any annual outgoings. So if your auto insurance amounts to $500 per year then you need to include that in your budget at around $45 per month. At this point it is also worth mentioning that it is a better idea to slightly overestimate your outgoings so you do not leave yourself short at the end of each month.

Once you have worked out your monthly outgoings you need to subtract this from your monthly income and this should leave you with a figure that you can comfortably put by each month.

2. Start saving

Once you have ascertained just how much you can put by each month, you then need to find a savings account that is best for you. The balancing act you need to perform at this point is finding a loan that not only offers you a good interest rate but one that also allows you the freedom to access your savings when you need them. There’s no point having a rainy day fund if you can’t access it when that rainy day finally arrives!

Another good tip is to look for an account that offers a bonus interest rate period whereby you can make more money on your savings. But it is also worth bearing in mind that, if you do choose an account like this, it makes sense to shop around and move your money to another account once that bonus period expires.

You could also consult a financial advisor to see if a tax free savings account, such as a Lifetime Savings Account (or an ISA if you are UK based), is best for your needs. This sort of savings account allows you to save a certain amount of money each year and whatever you put in is not tax-deductable and any returns on your investment are also tax-free.

3. Don’t dip into your savings

Once you have reached your savings goal then it is important that you do not touch the money unless you have a real emergency as it is not a holiday or new car fund, it is a safety net!

But what should be your safety net savings goal?

Studies have shown that most people take an average of between three and six months to get back on their feet after a job loss or personal crisis so this is something else that needs to be factored in to saving for a rainy day. In other words, your savings goal should be to cover between three and six months worth of outgoings.

So if your monthly outgoings are $1,500 then you should aim to save a minimum of $4,500 as this would cover you for a three month period. But, as a rule of thumb, you should aim to save as much as you possibly can as you never know how long it may take you to get back on your feet.

And if you are lucky enough to never have to call upon your emergency fund then it will continue to keep accruing interest and growing in value until you come to a point in life where you can use it for something you really want.

Article written by Les Roberts, savings specialist at Moneysupermarket.com

Picture by TheFasterDanish on Flickr

What may not be so clear is what the amount of the emergency fund should be, and how to go about calculating it. Different factors come into play, depending on your personal situation.

For instance, if there is only one breadwinner in the family, six to twelve month’s worth of expenses would be a safer bet than three month’s worth, since there is only one source of income for the family to rely on. However, if there are two income earners in your family, you could possibly survive with savings that will cover you for around three to six months. If one of you were to lose your job, you’d still be able to rely on the other source of income.

Furthermore, if your job is a more traditionally “stable” one, such as a nurse or IT professional, you may also only need a three-month emergency fund.

But if your job is not as secure or you don’t receive a steady salary, as is the case with a commissioned salesperson, you’d probably need an emergency fund to pay for six to twelve month’s worth of expenses. This would help you stay afloat until you’re able to find work again. And if you have disability insurance, but the payments don’t begin for six months, you would need an emergency fund to support you in the meantime.

So what should you include in your monthly expenses?


Your emergency fund should only include non-discretionary expenses. These are the necessary expenses that include, but are not limited to:

• mortgage or rent payments
• food
• car payments
• utility bills (water, gas, electricity, etc.)
• insurance premiums

Things that should NOT be included are luxury items, such as Starbucks coffee, video games, eating out at restaurants, and other entertainment expenses. In a real emergency, you should just get by with the minimum until you get back on your feet.

So the simple way to calculate the size of your emergency fund is to total up your monthly non-discretionary expenses and multiply that figure by the number of months you decided your fund should cover you for. If your monthly expenses total $4,000 and you want the fund to last for six months, then your fund should have a total of $24,000.

Similarly, if you already have a savings account for emergency purposes, you can calculate how long that fund would cover you if you were to lose your source of income. So if you had $10,000 in your emergency fund and had $5,000 of monthly expenses, you would simply divide the emergency fund amount by the monthly expenses. In this case, your fund would only last for two months. If you wanted your fund to sustain you for six months, then you’d have to add $20,000 more.

Where do you place your emergency funds?

You should have your funds invested in an account that you can access easily. One of the best types are online savings accounts. These are accounts that are linked to your checking account, so that you can transfer the emergency fund money back into them in the case of an emergency. They pay a little bit of interest, and some banks even offer a bonus to open up the account. Furthermore, since they’re often insured by the FDIC, you can feel good that your money is in a safe place.

On one hand, home ownership is a big commitment that can be very expensive. On the other hand, ownership is also an investment that can be less expensive than renting over the long term. So how do you decide?

Here are the advantages of each.

Advantages Of Renting

Greater Flexibility

Depending on your lease, you’re not tied to your residence for more than a year or two.

But when you buy a home, you’ll first need to sell it or find a tenant before you can move.

Low Maintenance

When you rent, maintenance issues such as fixing a broken pipe or clogged drain is the landlord’s responsibility. He’ll not only get somebody to fix it, but he’ll also pay the bill.

When you buy a home, keeping everything in good repair comes out of your own wallet.

Move In Faster

Renters can move in soon after their application is approved.

Buyers need to find the right home, negotiate the offer, get financing, and transfer ownership of the property. All of this takes considerably more time.

Move In Cheaper

Renting usually doesn’t involve more than two months’ rent and a security deposit to move in.

On the other hand, buying a home not only involves a big down payment (at least 20% in most cases), but you also pay thousands of dollars in fees and costs associated with getting a mortgage. These include application, origination, and title insurance fees just to name a few.

Advantages Of Buying

Your Own Place

For most, the main reason we want to buy is so that we’ll have a place to call our very own. With home ownership, you’re no longer paying off the landlord’s mortgage. Having your name on the deed is a great feeling for most of us.

Build Equity

As you pay off your mortgage and as home values rise, you build equity in your home. You can think of equity as a savings account, cashing out if you sell your home and using the money as a down payment for another house. Or you can borrow from your equity through a home equity loan or a home equity line of credit.

Tax Breaks

Mortgage interest, property taxes, and closing costs are deductible from your federal income taxes. This is another big reason why home ownership is appealing for many.

Beat Inflation

We’ve talked about the easiest way to beat inflation before. But here’s another, more indirect way.

As the cost of living rises, rent increases along with it. But if you apply for a fixed-rate mortgage, your payments stay the same for as long as you live in the home. So the longer you live there, the greater this benefit becomes.

What other factors are there to consider? Do you currently rent or buy the home you live in?

First photo by faul; Second photo by Casey Serin

This post was included in the Carnival Of Personal Finance during the week of August 2, 2010. Check out the Ultimate Money Blog for a variety of great articles!

Tax Treatment

As with ESA’s, contributions to a 529 Plan are not deductible for federal tax purposes. However, earnings are tax-deferred. And if used for qualified education expenses, accumulated funds can be withdrawn tax free.

One feature that some 529 Plans have which all ESA’s don’t are state tax benefits. Some state plans offer an upfront deduction on contributions, while others make withdrawals exempt from state taxes in addition to the federal tax exemption.

Contribution Limits And Requirements

Each state has their own 529 Plan, but investment in a state’s plan doesn’t restrict you to using the funds for a school in that state. You can live in Texas, invest in a California plan, and send your beneficiary to college in New York.

With the inflation rate for college rising faster than the normal inflation rate, some people want to save more than the $2,000 annual limit for ESA’s. The 529 Plan has a much larger limit. You can contribute up to the limit set by the state offering the plan, which is usually over $300,000 per beneficiary.

And unlike ESA’s, there are no income limitations for those who want to contribute to a 529 Plan.

Qualified Withdrawals

Unlike ESA’s, in which beneficiaries must use the assets by the time they reach age 30, there is no age limit on the use of 529 Plan assets.

But although ESA funds can be used for elementary, secondary, and post secondary school expenses, funds in a 529 Plan can only be used at a post secondary school.

And like the ESA, earnings in a 529 Plan that aren’t used for qualified expenses will be subject to income tax and a 10% penalty.

Available Investments

While ESA’s are more flexible with the type of investments you can choose, 529 Plans are more restrictive. Funds can only be invested in portfolios established by the plan.

Each portfolio will have different investment objectives, but there will usually be an option for a portfolio whose asset allocation becomes more conservative as the beneficiary reaches college age. In addition to this, you’re allowed to change the investment strategy once a year.

Additional Benefits

Not only is the 529 Plan a great savings tool for college – another benefit is that it can be used to reduce the size of your estate. Contributions of up to $13,000 per year can be made to the 529 Plan without paying a gift tax. Once completed, this money is removed from your estate.

And since you can treat a contribution as being made over a five-year period for gift tax purposes, you can contribute a lump sum of $65,000 in the first year and still avoid gift tax. With this method, the money and its future appreciation will be removed from your estate faster.

Closing Thoughts

So because of the larger contribution limits, state tax benefits, and ability to remove assets from your estate, I think the 529 Plan has the advantage over the Coverdell ESA.

What do you think? Do you have a 529 Plan? Do you like them better than Coverdell ESA’s?

This post was included in the Carnival of Personal Finance during the week of July 6, 2010. Check out My Journey To Millions’ for a variety of great articles!

What It Is

A Coverdell ESA is an investment account in which the funds can be withdrawn tax free if used for qualified education expenses.

Contributions are not deductible, but earnings are tax deferred. The account can be funded until the beneficiary reaches age 18. However, if the funds are not used by the time the beneficiary reaches age 30, both income tax and a 10% penalty will be owed on the earnings.

Who Can Open One?

As long as your modified AGI is under $190,000 ($95,000 for single filers), you can make the maximum contribution, which is $2,000 per year. But if you AGI is between $190,000 and $220,000 ($95,000 and $110,000 for single filers), your maximum contribution is gradually phased out.

Although the beneficiary must be under the age of 18 at the time of contribution, he or she does not need to be your child or relative. So you can open an account for the child of a good friend if you wanted to.

Multiple accounts can even be opened for a child by several contributors, as long as the total contributions from all individuals is within the $2,000 annual limit. Otherwise, a 6% penalty is owed on the excess.

What If You Make Too Much Money?

A nice benefit of the ESA is that if your income is over limit, an account can still be opened for the child. By gifting the money to the child, he or she can open the account and make the contribution. There’s no need for the contributor to have earned income.

What Can You Invest In?

Your contribution can be invested in stocks, bonds, mutual funds, and CD’s. However, life insurance isn’t allowed.

What Can You Use The Money For?

Not only can the funds be used at a post secondary institution, but they can also be used for both elementary and secondary school expenses. Qualified expenses include tuition, fees, room and board, books, supplies and equipment required for attendance.

Tips And Tricks

Since you’re making a big investment in the education of another person, you may be worried if the beneficiary decides not to go to college. Luckily, you can transfer the funds to another beneficiary, as long as they are a member of the family under age 30. Some of the qualifying members include the beneficiary’s children, siblings, parents, first cousins, and in-laws.

One last important note is that certain ESA benefits are set to expire after 2010. Unless Congress acts, elementary and secondary school expenses will no longer be considered qualified expenses, and the contribution limit will be reduced to $500 per year.

For more information, check out savingforcollege.com.

Do you have a Coverdell ESA? What do you like about it? What do you not like about it?

This post was included in the Carnival of Personal Finance during the week of June 28, 2010. Check out Suburban Dollar‘s blog for a variety of great articles!

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