A Saving Grace

I'm gonna wrap up the New Year's resolution miniseries, since we're a couple of weeks into the New Year and maybe half the country has already broken their resolutions. If you haven't, congratulations! If you have, you can always get back on track.

"Save more money" has got to be an item on most peoples' resolutions list. It seems easy enough to do--just stick money into the bank. However, it's not so simple. Some people don't make enough money to meet the minimums of standard bank accounts, or even if the minimum can be met, it can't be maintained--which is a problem, because banks will charge fees for going below the minimum (for example, Bank of America charges a $3 fee per month). Even if the minimum isn't a problem, the average bank account yields so little interest that it's laughable.

If the minimum is a problem, saving money will require more discipline. At least have a checking account, since it's typically free. Since all of your money is in the same place, there's no real segregation between your rent money and the entertainment fund. Hence, you'll have to keep tabs and not overspend whenever you swipe your debit card. Even if you can afford to save $20 a month, it's still something. Obviously it'll take a long time before it'll come to be a meaningful amount, but you gotta start somewhere, right?

If you have a bit more extra, you can opt for a number of strategies. Since I don't know as much as I should about stocks and mutual funds, I won't go there. There are plenty of financial sites out there (such as the Motley Fool, recommended to me by a savings-savvy friend) that are very instructive. The more risks, the greater the return--those are the two sides of the coin.

The traditionally less-risky-but-higher-yield approaches are the savings bond and CD (certificate of deposit). The yield is far better than the ordinary savings account, and there are no huge risks associated with the market like stocks, but your money is locked in for a certain amount of time, ranging from 6 months to 5 or more years. Of course, the longer you have it locked away, the greater the return, but you'll be penalized for pulling out the money too early. Since I wanted to keep what money I had (not that much, but not exactly chump change) as fluid as possible, I decided against these approaches. In retrospect, it was probably not the smartest decision. One of my friends liked the ladder approach for CD's. For example, you can start with a 5-year CD and get another one the next year, then another, then another, then another. That way a CD will mature every single year after the first 5 years are up. Again, I'm oversimplifying things and I'm not an expert by any means, so you should do your own research.

I wish I did this sooner, but high-yield online accounts such as ING Direct, Emigrant Direct, and HSBC Direct (as covered by Cap at Stop Buying Crap) seem to be a good way to make money work a little harder. The return is around 5%, there's often no minimums, and money isn't locked away for extended periods of time. Here's how it works--you open an account, link it to your checking account, then transfer money from your checking account into the high-yield account. My pet peeve is that sometimes it takes a few days before money is actually transferred between the accounts, but it's not that big of a deal for me. It's not a good idea to put everything you have into such accounts, especially if you need money fast at any given moment, but I think it's much better than leaving it in a regular savings account.

This is simply an introductory primer. Please do your homework carefully and talk to people you know and trust. I think your friends and family who have done this before will be happy to help you out.