For over a year now I’ve been consistently putting money away into my savings. When I began putting money into savings, I was following the “pay yourself first” principle. However, I didn’t have a budget and I didn’t have a set amount I contributed to my savings. I am paid twice per month, and I would contribute between $100 and $200 to my savings each time I was paid.
In November, I created my first budget. This was the first time I contributed a defined amount to my savings. At that time, I also set a goal of saving $4000 by 01 May (in addition to the money already in my savings). In December, I took inventory of said goal and determined that I would need $350 from each future paycheck to go to savings to hit my goal. So far I am perfectly on track – I haven’t contributed any additional money, but I haven’t slacked off at all either.
About a month ago, I took Ramit’s advice and set up subaccounts in my ING Direct savings account. Until this point all of my savings money had been going into one savings account that I considered a catch-all for long-term savings/emergency fund/etc. I now have three accounts set up: “Chicago,” “Long-term,” and “Emergency Fund.” Of the $350 I save each month, I put $280 (80% of total savings) into “Chicago” since I plan to move there next summer. I put $35 (10% of total savings) into each of the other two accounts. I figure if I need more than what’s technically in my emergency fund, I can withdraw from one of the others. Plus, the thing most people want an e-fund for (moving, switching jobs, etc.) is already covered by the Chicago account, so really “Emergency Fund” is just for car repairs and the like. I’m considering a fourth account, “Investing in Myself,” to have money specifically set aside for education, books, or other things that will further my earning potential or personal growth.
Yesterday I called to (finally!) make an appointment to take the GRE. After debating how to pay for it, I have decided that I will put it on my credit card and budget half of the cost from my next paycheck and half from savings. The total cost of the GRE general test is $140, so that will be $70 from each. This is what made me think I need an “Investing in Myself” savings account, since I’m not sure which account to pull from for this investment. Maybe I’ll take it from the nondescript savings account at my brick-and-mortar bank which has a few hundred dollars in it just as overdraft protection for my checking account.
So, now I’ve gotten pretty good at saving money and directing my money – from each check money goes toward my 403(b), Roth IRA, those 3 savings accounts before I spend anything – but I’m not so good at knowing when to pull money out of savings. What actually counts as an “emergency,” worthy of pulling from the “Emergency Fund?” (My answer so far: nothing.) Emergency means there is no other way of coming up with the money, short of credit cards or some other interest-bearing loan, right? So far I’ve never had an emergency that I couldn’t put on my credit card, pay off with my next paycheck, and then just “live broke” for a few weeks or months until everything was back in order. Also, I don’t save up for the things most people do – I don’t really want a new tv, or a new car (I can’t wait for Chicago, with public transportation!), or a huge vacation. So I don’t have set goals since there isn’t really anything I want that badly. I save mainly because I assume that some day I will want things, and I don’t want to ever not be able to purchase something I want due to not having enough money.
How do you decide when it’s “okay” to withdraw from savings? Do you have specific goals for your savings accounts, and if so, does this make it easier to withdraw money later (since you know exactly what you plan to spend it on)? Any advice for how I should re-label or re-organize my accounts?