“How should I use my savings?” A Reader Question | Molly’s Money
If this is your first time here, Molly’s Money is a regular series I write on this blog that includes ALL things personal finance – debt management, budgeting, home buying, savings, investment, etc. I am NOT a financial advisor, but I am married to one! These are just things that I have learned over the years as I struggled with my own personal finances and ultimately, became debt free in 2012. Got a question about money that you want answered? Leave it in the comments below or email me!
I love when you guys write to me with questions! That’s one of my favorite parts of writing this blog… especially my personal finance money series. Sometimes, when I feel a question (or questions) might be relevant to LOTS of you, I share them, and my answer, in a post. That way you guys can learn from each other, too. If that makes sense.
Anyway, this week’s questions come from K.B. and she’s got a few that I think a lot of you may have similar questions about! Without further ado…
“[…] I am leasing a car right now, and the same year that my lease ends is the year my boyfriend and I are looking to purchase our first home. Would you have any information on whether it would be best to buy or lease a car at that time, and why?
Also, regarding savings accounts I have a few questions… Right now I have two savings accounts. One I have for saving for a down payment on a house and everything that goes with it. The second one I have for saving for upcoming things. For example, we have a mini vacation coming up and a friend getting married out of town. So I use that savings to save up money for those types of deals. Now, should I use my first one as you say an emergency fund to, and just put all that into one? Or should I have another one where it is just strictly emergency? Also, between two or three savings accounts, how do I decide how much to put in each and split it up, each month/week?”
-K.B.
Hey K.B.!
These are great questions and ones I am so glad that you are asking at this stage in your life and in your finances.
First, to address the issue of leasing versus buying a car. I am always, ALWAYS of the mindset that you should buy and never lease a car. You can read an entire blog post that has a little more of my thought process AND some tips on buying a car. In short, leasing a car is basically throwing away money… when it is all said and done, you don’t have anything to show for it. So, saving and then buying a car (used!) is the way to go!
As far as your savings accounts go, there’s really no official right or wrong answer to this, because ultimately, it’s important that you save… no matter how you do it. Obviously there are going to be some ways that saving is more beneficial (i.e. saving for retirement through an IRA or something like that), but it’s all fundamentally the same thing: saving money.
Here’s how we (my husband and I) have ours set up…
We have two primary accounts that our “liquid” cash is in. That’s the cash that we can touch at any time if need be. Our non-liquid savings like our IRAs, 401(K)s, and mutual funds are separate from these main accounts. These main accounts I’m referring to are the ones that you have at your regular, normal, everyday bank.
We have our checking account and our savings account.
Our checking account is what we work off of for our monthly budget… our bills get paid out of that account, along with all our other daily, weekly, and monthly expenses.
Our one savings account is just one lump sum of money… HOWEVER, we have a shared Google doc spreadsheet (that’s just the method that we like best because we both have access to it), that has a breakdown of what the money in our one savings account is for.
So, here’s what we have written out in that shared savings account spreadsheet:
- How much of the savings is our “emergency fund.” This money is NOT TOUCHABLE… unless, of course, there is an emergency.
- How much of the savings is our “3-6 months of expenses.” This is separate from the emergency fund because this is in case one of us is disabled or one of us lost a job or something like that. We NEVER go below this amount in our savings account… at minimum. So, for example, if $10,000 is 3-6 months of expenses for you, then you are to never go below $10,000 in your savings account.
- How much of the savings is for a particular item (for example, we had a line item for when we were shopping and saving for a car for me… this could also include something like the down payment on a house)
- How much of the savings is delegated for travel, vacations, or other “fun” expenses that we’re saving for
- How much of the savings is delegated for house projects or improvements (i.e. new furniture, decor, or something we want to do to improve our home)
So, honestly, if it were me, I would combine your two savings accounts into ONE and then just make note of what is what. This definitely does take some discipline to know not to touch certain portions of your savings account… but I think it also teaches you a lot more about your money. If that makes sense.
And then, in whatever system works best for you, you simply keep track of what money in your account is for what.
I hope that is helpful! Good luck!
xo,
Molly
Like Erica, I use Ally accounts for savings. We have our normal bank checking and savings, but then we have Ally accounts for our emergency fund, things we’re currently saving for, and things we have finished saving for. For example, we’re going on vacation in October, and we’ll have all the money saved by July. When we hit our goal amount, I transfer it from the “goal savings” account into the “completed goals” account.
We use the Ally money market account for the emergency fund – the interest rate is slightly lower, but we have a debit card access so we don’t have to worry about the transfer time if we find ourselves in an emergency. However, we don’t keep the emergency fund card in our wallets so it’s not a temptation to use. 🙂
Currently we have multiple accounts through the online bank ally.com, which has a .99% interest rate. This is in addition to one regular checking and savings at a regular bank, since sometimes it takes a few extra days to transfer money from the online bank, we like to keep some easier to access. We split the money into categories for emergency fund, house fund, car, vacation, and misc (for specific big purchases when we need to save up for something,). I used to have in all lumped into one, but even tracking it as XX saved for vacation, I felt like I couldn’t take it out of savings because I had a hard time separating it mentally from my emergency money, even though the excel sheet said it was for a vacation, ya know? So the online bank was win win, since it was a higher interest rate and it was super easy to make sub accounts and name them for what I was saving for. I think as long as you know what is what, you can do whatever amount of accounts you are comfortable with.
Erica, I do the same thing! I love those Ally accounts!
Molly, good article. Especially the part about BUYING USED.
Let someone else take the hit on depreciation. Cars since 2004 or so should run for 300k miles with maybe a couple of repairs.
Keep up the good work!
We do what you do, have one lump savings account and keep track of what is in what “fund”.