Savings Goal: Emergency Fund | America Saves

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Make a pledge to yourself and create a simple savings plan that works.

EMERGENCY FUND

Nearly a quarter of savers who take the America Saves pledge chose “emergency savings” as their first wealth-building goal. And they have the right idea. Research shows that low-income families with at least $500 in an emergency fund were better off financially than moderate-income families with less than this amount. Yet most Americans don’t have enough savings to cover an unexpected emergency.

WHAT IS AN EMERGENCY SAVINGS FUND?

An emergency savings fund consists of at least $500, usually in a savings account that you do not have easy access to. Saving for this fund starts with small, regularly scheduled automatic contributions that build up over time.

WHY SHOULD YOU START SAVING FOR EMERGENCIES?

Maintaining an emergency savings account may be the most important difference between those who manage to stay afloat and those who sink in debt. It also gives you peace of mind knowing that you can afford to pay unexpected expenses and ease anxieties over an uncertain future. That’s because keeping $500 to $1,000 of savings for emergencies can allow you to easily meet unexpected financial challenges such as repairing the brakes on your car or replacing a broken window in your house.

“Having cash or cash equivalents in your portfolio gives you peace of mind and the opportunity to capitalize when everyone else is losing their minds during a market correction,” said Henry Hoang, a certified financial planner with Bright Wealth Advisors in Irvine, California.

Not having emergency savings is one of the reasons many individuals borrow too much money, resort to high-cost loans, or increase their credit card balances to high levels.

HOW SHOULD YOU BUILD YOUR EMERGENCY SAVINGS?

The easiest and most effective way to save is automatically. This is how millions of Americans save. Your bank or credit union can help you set up automatic savings by transferring a fixed amount from your checking account to a savings account. Learn more about saving automatically. 

WHERE SHOULD YOU KEEP YOUR EMERGENCY SAVINGS?

It’s usually best to keep emergency savings in a bank or credit union savings account. These types of accounts offer easier access to your money than certificates of deposit, U.S. Savings Bonds, or mutual funds. Though these are useful tools for long-term saving, they are not ideal for an emergency fund that you may need access to more quickly. But not too quickly! Keeping your money in a savings account makes it much less likely that you will use these savings to pay for everyday, non-emergency expenses. Out of sight, out of mind. That’s why it is usually a mistake to keep your emergency fund in a checking account.

Your local America Saves campaign can help you find a participating financial institution that offers low- or no-minimum balance savings accounts.

HOW CAN YOU GET STARTED?

Those with a savings plan are twice as likely to save successfully. This includes setting a goal to build an emergency fund and deciding how much you want to save each month. This is where we come in. If you’re ready to make a commitment to yourself to save, take the America Saves pledge to save money, build wealth, and reduce debt. We’ll keep you motivated with information, advice, tips, and reminders to help you reach your goal to build an emergency fund.

References:

  1. https://americasaves.org/what-to-save-for/?goal=emergency-fund
  2. https://money.yahoo.com/warren-buffett-advice-is-more-relevant-than-ever-155730298.html

TWELVE SUCCESSFUL WAYS TO SAVE MONEY | America Saves

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Start small, Think big. Make a commitment to yourself to save money, reduce your debt, establish an emergency fund, invest for the long-term and begin building wealth.

By Barbara O’Neill, Ph.D., CFP, CRPC, AFC, CHC, CFEd, CFCS, Rutgers Cooperative Extension

Savings is the foundation for investing. You cannot invest money if you have not saved it first. Like dieting, saving money is hard to start, even harder to maintain, and requires patience and discipline. When you achieve your financial goals, however, the results are so worth it. Below are 12 time-tested ways to save:

  1. Pay Yourself First – Treat savings like an important household bill (e.g., loan payment). Set aside a part of each paycheck, even if it is only a small amount, and leave it there. Save automatically where possible.
  2. Collect Coins – Put loose change into a can or jar. When the container is full, deposit the money into a savings account. Set aside $1 a day, plus loose change, and you should have about $50 a month, or $600 a year, saved. Save $2 a day, plus loose change, and you should have about $1,000.
  3. Complete a Savings Challenge – Pick a savings Challenge that matches your time frame and savings goal such as the 30 Day $100 Savings Challenge or the 50 Week $2,500 Savings Challenge. Savings challenges gradually ramp up savings deposits over time and provide motivation and structure.
  4. Continue to Pay a Loan or Bill – Make payments to savings or investment accounts with money that is freed up when loan payments end or an expense, such as childcare, ends. The rationale behind this savings method is that you are already accustomed to the payment so “redirecting” it will not pinch your cash flow.
  5. Break Costly Habits – Track your spending for a month or two and pick a few places where spending can be cut back or cut out to “find” money to save. For example, brown bagging lunch two or three days per week could save hundreds of dollars over the course of a year.
  6. Bank a Windfall – Save all or part of large, infrequent expected or unexpected sums of money. Examples of common financial windfalls include tax refunds, inheritances, settlements, awards and prizes, retroactive pay increases, and year-end bonuses at work.
  7. Crash Save – Decide that, for a month or two, you will buy only absolute necessities and save any money that remains after paying bills. At the end of the crash savings time period, treat yourself and buy the item(s) that you were saving for. Then resume your “normal” spending habits or set a new crash savings goal.
  8. Start a “Club” Savings Plan – Start a structured savings plan to save money over the course of a year for holiday or vacation expenses. Some banks and many credit unions still offer them. Unlike “coupon books” of years ago, weekly savings deposits are often transferred electronically from checking to savings.
  9. Save Your “Extra” Paychecks – Mark your paydays each year on a calendar. If you are paid bi-weekly, in two months of the year, you will receive three paychecks. If you are paid weekly, there will be four months with five paychecks. Anticipate these months in advance and plan to save part of the “extra” paycheck.
  10. Save Excess Expense Reimbursement Money – Review your employer’s reimbursement policy. If you get a fixed sum for business travel expenses, instead of having to collect receipts, and spend less than the per diem amount, save the difference. Ditto for mileage reimbursement for using a personal car for business.
  11. Reinvest Interest and Dividends Automatically – Arrange to have dividends and capital gains on mutual funds reinvested to purchase additional shares rather than receiving a check for a small amount and spending it. This is a painless way to increase investment account value over time.
  12. Participate in a Tax-Deferred Retirement Plan – Reduce your salary via payroll deduction to save for retirement and aim to take maximum advantage of employer matching. Money contributed to a 401(k), 403(b), or similar retirement savings plan and earnings on these funds grow tax-deferred until withdrawal.

For additional information about saving money, visit the America Saves program website.

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Spring is here! This is the perfect time to do some spring cleaning in your financial house. April has been declared as National Financial Capability Month. Throughout the month, the Financial Literacy and Education Commission (FLEC) and the Ready Campaign encourage people to take action to improve their financial futures and to be prepared when disaster strikes.

References:

  1. https://americasaves.org/resource-center/partner-resource-packets/financial-capability-month-ways-to-improve-your-financial-capability-now/
  2. https://americasaves.org

Increased Social Security Benefits for Military Veterans

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media defense.gov 2015

Many military veterans might not know this, but there are additional social security benefits for those who have served active duty, according to the VFW website.

This is an extra Social Security Administration (SSA) benefit for those with active duty status between January 1957 to December 31, 2001 with plans for retirement (and for those already retired).

A military veteran (during the before mentioned dates) qualifies for a higher social security payment because of their military service. Veterans can qualify up to $1,200 per year of earnings credit credited at time of application, which can make a substantial difference in social security monthly payments upon retirement. To apply, you must bring your DD 214 to the Social Security Office and you must ask for this benefit to receive it.

Unfortunately this program from January 2002 forward, the Defense Appropriations Act stopped the special extra earnings that have been credited to military service personnel.

This is something to put in your files when you apply for Social Security down the road. It is NOT just for retirees, but for anyone who has served on active duty during the qualifying dates.

Again, this benefit is not automatic. You must ask for it.

Claiming Social Security Benefits

You can retire as early as age 62. But if you do, your Social Security benefits will be permanently reduced.  If you decide to apply for benefits before your full retirement age, you can work and still get some Social Security benefits. There are limits on how much you can earn without losing some or all of your retirement benefits. These limits change each year. When you apply for benefits, SSA will tell you what the limits are at that time and whether work will affect your monthly benefits. In 2021, that limit increased to $18,960. Once your income exceeds that point, you’ll have $1 in Social Security withheld for every $2 you earn.

When you reach your full retirement age, SSA will not withhold your Social Security benefits, no matter how much you earn. If some of your retirement benefits were withheld due to your earnings, SSA will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.

You can receive both Social Security benefits and military retirement. Generally, there is no reduction of Social Security benefits because of your military retirement benefits. You’ll get your Social Security benefit based on your earnings and age you choose to start receiving benefits

For more information go to Social Security Administration website here: https://www.ssa.gov/planners/retire/military.html

References:

  1. https://www.ssa.gov/pubs/EN-05-10017.pdf

Quote of the Week

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“Happiness comes from spiritual wealth, not material wealth. Happiness comes from giving, not getting. If we try hard to bring happiness to others, we cannot stop it from coming to us also. To get joy, we must give it, and to keep joy, we must scatter it.”

Sir John Templeton, an American-born British investor, banker, fund manager, and philanthropist. He created the Templeton Growth Fund, which averaged growth over 15% per year for 38 years.

Sir Christopher Wren and The Story of Three Bricklayers

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Mindset affects just about everything–including your attitude. Your attitude is based upon your beliefs. Beliefs affect your decisions. Decisions affect your behavior, behavior affect your actions, actions affect your results.

After the Great Fire of London destroyed much of the medieval city of London in 1666, Sir Christopher Wren designed new churches and supervised the reconstruction of some of London’s most important buildings. His name is synonymous with London architecture.

He produced ambitious plans for rebuilding the whole area but they were rejected, partly because property owners insisted on keeping the sites of their destroyed buildings.

Wren did design fifty-one (51) new city churches, as well as the new St Paul’s Cathedral. In 1669, he was appointed surveyor of the royal works which effectively gave him control of all government building in the country. He was knighted in 1673.

Story of Three Bricklayers

We see things as we are; not as they are

The story of three bricklayers is a true story. After the great fire of 1666 that leveled London, the world’s most famous architect, Sir Christopher Wren, was commissioned to rebuild St Paul’s Cathedral.

One day in 1671, Sir Wren observed three bricklayers on a scaffold, one crouched, one half-standing and one standing tall, working very hard and fast.

  • To the first bricklayer, Christopher Wren asked the question, “What are you doing?” to which the bricklayer replied, “I’m a bricklayer. I am cutting this stone to a certain size and shape.” He was just doing a task
  • The second bricklayer, responded, “I’m a builder. I’m building a wall. I’m working hard laying bricks to feed my family.” He was just earning a living
  • But the third brick layer, the most productive of the three, when asked the question, “What are you doing?” replied with a gleam in his eye, “I’m a cathedral builder. I am helping Sir Christopher Wren build St. Paul’s Cathedral for The Almighty.” He was doing his small part of building a great cathedral.

The lessons from the story of three bricklayers:

  • Big Picture Thinking – Being able to see the end result and how your work contributes to that end.
  • Attitude – A positive attitude and pride in what you are doing will show up in your work and your motivation.
  • Connection to the Organization’s Mission – Employees who are rightly connected to the organization’s mission, vision, values, and goals are happier, more engaged, and more productive employees.

The Power of Purpose and Calling

The story of the three bricklayers is also a metaphor on the power of purpose, where the “cathedral builder,” demonstrates a personal expression of purpose that transforms his attitude and gives a higher meaning to his work. Another term for purpose is “calling.” For the first bricklayer, building the wall was a job. For the second bricklayer it was an occupation. For the third bricklayer, it was a calling.

A calling reflects our universal need to matter, to influence, and make a difference in the world around us.  Victor Frankel made this clear in his book, The Meaning of Life.  He wrote about how some people survived the holocaust, but so many didn’t.  One of the things he identified was those who had a purpose or reason to continue to live that was beyond themselves tended to survive, while those who were focused primarily on themselves did not.  Those who survived found some meaning in their painful circumstances.  The meaning they found was in caring for and helping others in this horrible experience.

References:

  1. https://www.thoughtco.com/sir-christopher-wren-rebuilder-of-london-177429
  2. http://www.bbc.co.uk/history/historic_figures/wren_christopher.shtml
  3. https://sacredstructures.org/mission/the-story-of-three-bricklayers-a-parable-about-the-power-of-purpose

5 Simple Rules for Investing Success

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“Definiteness of purpose or single-mindedness combined with PMA (positive mental attitude) is the starting point of all worthwhile achievement. It means that you should have one high, desirable, outstanding goal and keep it ever before you.” W. Clement Stone

Investing is a mental game.  And to be successful at the mental game, you must adjust your mindset and retrain your thinking that as a long-term investor, you need to be able to buy stocks and open new positions when the market is crashing or correcting.  You’re genetically programmed to be a lousy investor.  You must set up systems and rules to fight our normal urges and invest at what appears to be the absolute worst time and when everyone else is fearful and selling.

It is important to accept the fact that you will absolutely enter a position at the wrong time and make a bad buy in the short term.  It happens to every investor at sometime in their life.

Investing doesn’t have to be intimidating or challenging. To get started investing in stocks and bonds, you should follow with deliberate purpose and action five simple rules for building a long-term portfolio, according to TD Ameritrade:

  1. Contribute early and often – The single most important thing you can do in investing is to invest early and save often. Thanks to the magic of compounding, money invested early has more time to grow. Delaying investing can have a significant effect on your portfolio. In fact, for every 10 years you wait before starting to investing, you’ll need to save roughly three times as much every month in order to catch up.
  2. Minimize fees and taxes – Charges and taxes will have an impact on your overall returns, so it’s important to take these into consideration when choosing your investments.
  3. Diversify your portfolio – We all know the saying ‘don’t put all your eggs in one basket’, but it’s particularly important to apply this rule when investing. Spreading your money across a range of different types of assets and geographical areas means you won’t be depending too heavily on one kind of investment or region. That means if one of them performs badly, some of your other investments might make up for these losses, although there are no guarantees.
  4. Consider how much time you have – Investing should never be considered a ‘get rich quick’ scheme. You need to remain invested for at least ten years, but preferably much longer to give your investments the best chance of providing the returns you’re hoping for. Even then you must be comfortable accepting the risk that you could get less than you put in. If your investment goals are short-term, for example, two or three years away, investing won’t be right for you, as you’ll need to keep your money readily accessible, usually in a savings account.
  5. Have a financial plan and focus on long-term goals – A financial plan creates a roadmap for your money and helps you achieve your goals. It is a comprehensive picture of your current finances, your financial goals and any strategies you’ve set to achieve those goals. Good financial planning should include details about your cash flow, savings, debt, investments, insurance and any other elements of your financial life. Knowing what your financial goals are and what sort of timeframe you are investing over may help you stick to your plan and strategy. For example, if you have long-terms goals, perhaps saving for retirement which may be several decades away, you may be less tempted to dip into your investments before you stop work.

And, never forget the top two and oldest rules for investors, according to Warren Buffet:

  • Rule #1 of investing is “Don’t Lose Money.”
  • Rule #2 is “Don’t forget rule #1.”

What Buffett is referring to is a state of mind and philosophy for investing. Simply, it means that there’s no such thing as “play money.” You don’t go out and speculate on a stock. You remain patient and disciplined, whether your tax deferred or brokerage accounts are up or down for the month or year.

Investing is not gambling and the stock market is not a casino. There’s no such thing as the house’s money in investing. It’s all your money, and it has to be protected.

So, don’t become anchored to the price of stocks, instead focus on buying good businesses at fair prices.  Only thing that truly matters in investing is the long-term future prospects (innovation, moat, management acumen) and growth opportunities of businesses. Don’t let the loss in the price of a stock get in your head and don’t let a short-term paper loss sway your emotions, behaviors or actions.

Better to be a regular investor rather than be perfect or optimize to price of the stock.  And remember, celebrate good stock buys, and recognize and learn from bad buys.

References:

  1. https://www.barclays.co.uk/smart-investor/news-and-research/investing-for-beginners/10-golden-rules-for-investors
  2. https://www.fool.com/retirement/2007/08/06/invest-early-and-often.aspx
  3. https://www.investopedia.com/articles/financial-theory/11/6-lessons-top-6-investors.asp
  4. https://www.investopedia.com/articles/fundamental-analysis/09/market-investor-axioms.asp
  5. https://cabotwealth.com/daily/how-to-invest/10-basic-rules-of-investing-according-to-the-legends

The Magic Penny…The Power of Compounding

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Imagine that a stranger walks up to you tomorrow and either offers you a one time payment of one million dollars ($1,000,000) in cash now or offers you a ‘magic penny’ that doubles in value everyday for thirty-one days.  In other words, when you wake up the next day, you miraculously have two pennies; on day three, four pennies; on day four eight pennies, and so forth.

Which would you take?

Believe it or not, thanks to the magic of compounding, the ‘magic penny’ would be worth over $10 million dollars after thirty-one days.  In other words, you would be better off taking the ‘magic penny’ than accepting a one-time payment of $1,000,000.  The illustration below shows the math:

Starting to save for retirement late can greatly reduce your overall nest egg

Investing Early Is Crucial

Getting started saving and investing early is perhaps the most important retirement axiom in personal finance.  The magical penny not only provides a vivid example of the sheer power of exponential growth, but also helps reinforce the value of early savings. By missing just the first nine days of the thirty-one days results in a significant difference in final outcome in accumulated values.

Reference:

  1. https://www.forbes.com/sites/shaharziv/2019/07/30/can-you-correctly-answer-the-magical-penny-question

 

Finland: The World’s Happiest Nation

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Trust was the key factor related to happiness

Finland is once again the world’s happiest country out of 149 countries, followed by Iceland and Denmark, through a year marked by the pandemic. The United States ranked 14th, moving up from the 18th spot. A key factor in top countries’ happiness relates to people’s trust in each other and their government.

In the past, The World Happiness Reports, which is a publication of the Sustainable Development Solutions Network, were primarily based on levels of GDP, life expectancy, generosity, social support, freedom and other factors.  However, this year, the report focused on the effects of COVID-19 and how people all over the world have fared. The report:

  • Focused on the effects of COVID-19 on the structure and quality of people’s lives,
  • Described and evaluated how governments all over the world have dealt with the pandemic.

“This whole report focuses on the effects of COVID-19 and how people all over the world have fared,” the team behind the report said.

Mental health and social/emotional well-being

Mental health has been one of the casualties both of the pandemic and the resulting lockdowns, according to The World Happiness Report. As the pandemic struck, there was a large and immediate decline in mental health in many countries worldwide.  There has been greater economic insecurity, anxiety, disruption of every aspect of life, and, for many people, stress and challenges to mental and physical health.

The early decline in mental health was higher in groups that already had more mental health problems — women, young people, and poorer people. It thus increased the existing inequalities in mental well-being.  At the same time, as mental healthcare needs have increased, mental health services have been disrupted. This is serious when we consider that the pandemic is likely to leave a lasting impact on the younger generation.

On the positive side, the pandemic has shone a light on mental health as never before. This increased public awareness bodes well for future research and better services that are urgently needed.

There has been surprising resilience in how people rate their lives overall.  Trust and the ability to count on others are major supports to life evaluations, especially in the face of crises. To feel that your lost wallet would be returned if found by a police officer, by a neighbor, or a stranger, is estimated to be more important for happiness than income, unemployment, and major health risks (see Figure 2.4 in chapter 2)

“We must aim for well-being rather than mere wealth, which will be fleeting indeed if we don’t do a much better job of addressing the challenges of sustainable development,” said Jeffrey Sachs, director of the Sustainable Development Solutions Network. “The pandemic reminds us of our global environmental threats, the urgent need to cooperate, and the difficulties of achieving cooperation in each country and globally. We need urgently to learn from Covid-19.”

References:

  1. https://worldhappiness.report/blog/in-a-lamentable-year-finland-again-is-the-happiest-country-in-the-world/
  2. https://worldhappiness.report/
  3. https://www.msn.com/en-us/money/other/finland-defends-title-as-world-e2-80-99s-happiest-nation-in-4th-straight-win/ar-BB1eKSd3?ocid=uxbndlbing

People fully vaccinated against COVID-19 can travel safely within the US

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Health officials say travel risk is low for those fully vaccinated

The Centers for Disease Control and Prevention announced that people who are fully vaccinated can travel within the US with a low risk of exposure to the COVID-19 virus.

The new guidance recommends that travelers continue to wear masks and socially distance, and advises that fully vaccinated travelers entering the US from overseas continue to test for infection.

The shift comes as new studies have shown that Covid-19 vaccines have been effective in real-world conditions at reducing the risk of infections with or without symptoms.

Image

CDC Director Dr. Rochelle Walensky said that fully vaccinated people don’t need to get a COVID-19 test before or after domestic travel—and don’t need to self-quarantine following travel. Travelers who have been fully vaccinated also don’t need to get tested prior to international flights unless that is required by the destination, and they don’t need to self-quarantine when they return to the U.S.

References:

  1. https://www.wsj.com/articles/cdc-says-travel-is-low-risk-for-fully-vaccinated-people-11617376809?mod=e2tw