Erik’s Blog: Board Shorts and Business Suits

In my quest to become better at saving money I have started to employ the pay myself first method. This is explained in Rich Dad, Poor Dad as basically paying yourself before you pay your bills. Why should you give your money away before you even get a chance at it? Now I’m not saying skip out on your bills and don’t pay them at all. That would be foolishly throwing money away. I try not to do that. Rather, the act of paying your savings first gives you less money to spend on useless things. Like that $100 bar tab I ran up this weekend?, hmmm?

Before I get to the bulk of my savings discussion I’ll tell you right off how to make $25. INGdirect.com. They offer $25 to any new person that signs up through a referral and starts their account with $250 initial deposit. If you do that your referral will get $10 deposited into their account. So essentially they are giving away $35. Really it’s true and they are offering a 3.75% yield. Now with that said of course I am looking for the $10 so shoot me and email and I will email you the referral. However, if you know someone who has an account and like what you read below, tell them to email you a referral. They’re your friend and I’m just some guy. $25 in your pocket, $10 in theirs. But if not drop me a line.

Now back to why I like the pay yourself first and how INGdirect and other online bank accounts are the way to go.

I would first like to say that I am coming from debt experience. Paying yourself first isn’t just for the rich. I have about $88,000 in student loans (that’s just from undergrad), and about $2,000 in credit card debt. Not to mention house payments, phone bills, heating bills, cable bills, gas, food, electricity, condo fees, you get the idea. I manage to pay off all of this and stash away around $100 every month just in my savings (I also try to get a little into stocks, and some in my 401K.) Some months it’s more some it’s less. You just have to consistently put money away.

As I mentioned above I do all this and some how run up a $100 bar tab on the weekend. Now that’s not every weekend, but what I’m trying to get across is that I do this and also have fun. That’s not to say it doesn’t come with some stress. I am living paycheck to paycheck but now that I started putting away at least $100 a month in a plane Jane savings account I can sleep a little better. I have only been doing this for 5 months and I’m over $500 in savings alone.

You may be saying to yourself, “Yippee, I can put all that money away and earn 0.5% from my bank.” Don’t use your bank. I repeat don’t use your bank. Unless you have $10,000+ to put into an account (in which case you wouldn’t be reading this article) it’s not worth it. I have yet to see a local bank anywhere offering anything to make it worth anything to use their savings program. Sure you may get a free toaster but if you put that money in a savings account yielding 7-8 times that you can buy a toaster easily with the interest. Where can you find a savings rate that is 7-8 times what you get locally? On the internet of course. I know, I know, isn’t it dangerous to keep your money on the internet? I say to that, Don’t you have access to your local checking and savings account online? (If you don’t’ you should probably switch banks, in fact, you SHOULD switch banks.) It also makes banking ten times easier and more convenient to save money. If this stuff wasn’t online there is no way I would be saving the money that I am today.

Getting over the, “But isn’t it dangerous” myth

Let me just reiterate, it’s an online service. If your bank isn’t giving you online access you need to switch. If you are using online services from your bank then I say, what’s the difference. The online banks offer FDIC insurance up to way more than most people will even have in their accounts. (I believe the average is $250,000 per account or maybe its the norm. If you have more than 250K you don’t know what to do with I got some loans I need paying off, let’s talk.) This FDIC insurance is the same as your local bank so there should be no worries at all.

With this insurance most banks now-a-days don’t even think twice about correcting fraudulent purchasing or activity. That’s what they have insurance for. These banks also realize that a lot of people are worried about giving any information online let alone bank information. Therefore they will do whatever it takes to keep you as a customer and tell your friend all about how well they work and how much money they are making. This alone is enough to make it as safe as possible.

Saving Money isn’t easy

This was where I needed to improve my savings techniques. I needed it to be easier to save. My local bank wasn’t offering enough in the savings account. Coupled with that even to make it worth something I needed to transfer the money between a liquid savings account a money market account and/or CDs. Quite cumbersome. Online services have made my life a lot simpler. The current rate I’m getting at my INGdirect account is 3.75% and I never have to walk into a bank.

Using online banking is really easy for me. I just log onto my account at INGdirect and click transfer money, it automatically takes the money out of my linked checking account for me. Safe and easy. Within two days my money is posted to my account. This is the only real drawback is that the money doesn’t leave your checking account for a day or two. But if you treat it as a check there shouldn’t be any problem. You wouldn’t overdraft if you wrote a large check so don’t do it with savings.

How can they offer such low rates?

This is an easy one. The way these companies make money is by having everything online. They get rid of all the rent for buildings, the tellers, the paper processors, all of it. That way they spend more money on you. Presto larger savings return. Who doesn’t want a big ROI?

Why is ING direct so good?

I keep my money at ING direct because they are well known and offer lots of other products. There are some savings accounts out there that offer a 4% or better rate but you have to open the account with a little more money and that’s all you get. They don’t have any other options. You can open an ING account with pennies and they offer other products like home loans, CDs, and investment accounts.

The investment accounts are the accounts that interested me. My plan is to begin by just applying my money to a savings account at INGdirect. After I accumulate some savings I am going to diversify within the same account and invest in several of their mutual fund offerings. The best part of their accounts is that they make it really simple with low risk, medium, and high risk portfolio options that they already set up. This is another thing that could fit into the really easy category. Easy diversification.

Conclusion

My conclusion is that you shouldn’t give up on savings accounts altogether. Just give up on them from your local banks. Until they offer a better toaster why wouldn’t you go with an online service such as INGdirect. Start paying yourself first and watch your savings grow. Don’t touch it, unless there is an emergency. (bar tabs aren’t emergencies, unless she’s really worth it) Just trust me, paying yourself first will be the best first move you can make towards realizing your financial goals.