Everywhere we turn, there are articles about saving for retirement ‘” advice to contribute to that 401k plan, open an IRA, use mutual funds, bonds ‘” save save save!!!! While conventional wisdom has proved that it is in your best interest to take advantage of retirement savings accounts, not everyone has the funds or 401k options available to them. Banks and other locations offer mutual funds, IRAs, Roth IRAs, etc — , but there are minimum buying requirements to purchase stock (sometimes $50, sometimes $100), and if monthly deposit requirements weren’t met, some banks would require me to go online and manually purchase my own shares! Oh the effort! And for those struggling with low or unsteady incomes, putting that much money aside a chunk at a time can be truly painful in the pocket book.
Witnessing my parents’ ever ongoing struggle to secure their future finances, I thought long and hard about a plan to help them save. While at 28 I am still young enough to swallow the pains gains of the stock market rollercoaster, but at 60 years old, they are not comfortable with any risk. With no previous savings to buy bonds or annuities, those low risk options were out as well. The solution they agreed to for securing their finances – online banking.
Online banks are wonderfully generous in their high interest rates… low overhead rates from not having physical branches offer these institutions the ability to pass on huge benefits to their customers: no minimum balance requirements, no fees, high variable interest rates, and automatic transactions for the ‘˜set it and forget it’ mentality. Funds are transferred into your online banking accounts via a standard checking/savings account from a traditional brick and mortar bank. Banks such as ING Direct offer a multitude of deposit accounts ‘” certificates of deposit, savings accounts, and checking accounts. Other online institutions, such as Smartypig.com offer savings accounts that can be split into goals, or rather, buckets of money that you can cash out of when the dollar goal has been reached (or when you just really need that cash!). The semi-liquidity comes into plan here ‘” most money transferred in is held for ten days before being able to be transferred out, and it takes a minimum three days to have that money transferred back to your standard accounts. This leads to a key point- knowing your banks and options is necessary to good planning.
Clearly, the two banks I mentioned are my favorites at this time. I showed my parents how it was easier to swallow large expenses, such as IRS tax payments, medical planning for future prescription refills, car insurance premiums, and vacation planning (yes, fun stuff too!), if they deposited small amounts from every income check they receive to go towards those goals. A Smartypig savings account was awesome for this, as they could designate money to go towards a specific goal (bucket) within the savings account. Not seeing it as a large pot of money just sitting in their savings account is helping them realize that it’s not available for miscellaneous spending. Reoccurring monthly expenses are set up for auto-pay out of an ING Direct checking account, and an emergency fund established as an ING Direct Savings account. These three accounts now have a standard amount of money being deposited to them, and any leftover funds remain in my parents’ standard checking account as ‘˜everyday’ money, for the little things that just happen to come up. It’s still early in the execution stage of my parents’ savings ‘” but I already see a difference in their feelings of control over their finances, and their spending habits. Their self control now will soon become feelings of freedom, relief, and confidence.