Dr. Mary Ann Campbell, CFP® = "Dr. MAC"

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Pay Yourself First

Tuesday, December 21st, 2010

It’s a mantra that is worth its weight in emergency funds. More people are saving now and our negative savings rate in America has been reversed.

How about you? Are you saving right off the top so that you don’t see it and don’t consider the money you put back for later cash for right now?

There are many avenues you can take to make your savings automatic. Start where you work, if your employer offers attractive savings options. When the money comes out of your paycheck before you receive the remainder, you more or less forget about it. That is, until you need it, and then you’ll not only be proud of yourself, but also possibly relieved and grateful.

If your place of employment doesn’t offer a viable option, then use your checking account. Have a certain amount electronically drafted from your checking account on the same day each month and automatically deposited to a savings account at the same financial institution.

Currently, interest paid on savings account is very low. When it comes to contingency or emergency funds, the return rate is not as important as having some money there to draw on when you need it. Get Rich Slowly.org shares timely tips on putting “pay yourself first” into practice. http://www.getrichslowly.org/blog/2010/11/04/how-to-save-putting-pay-yourself-first-into-practice/

You can shop for rates at www.money-rates.com. Higher returns will usually be found at credit unions because they are serviced by members at a lower operating cost and are given regulatory breaks that the banks don’t receive. Liz Weston shares tips on advantages of credit unions at http://asklizweston.com/2010/02/09/what-you-gain-from-switching-to-a-credit-union/. Online banks also offer higher returns because they don’t have the brick and mortar expense of buildings and employees.

No matter where you choose to you stash your emergency cash, make sure your money is covered by insurance. The Federal Deposit Insurance Corporation (FDIC) covers accounts at banks up to $250,000 per unique account. Most online banks also carry FDIC coverage. Their logo will show prominently on the website if they do. Credit union accounts are covered by the National Credit Union Association (NCUA.)

As far as the amount to save, moderation is the key. Put back a reasonable amount on a regular basis. If you see you can save more, then do it, but if you have to go into your savings for living expenses, reduce the amount you’re with holding, or reduce your living expenses. When a person diets to the extreme, they often binge later on. Same goes for savings; make sure the amount is comfortable for your lifestyle and save consistently and automatically if possible.

2 Responses to “Pay Yourself First”

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