When it comes to saving accounts in West Virginia, it seems everyone has a formula or a plan they say is best. From saving a flat percentage of your money every month to basing how much cash you should put away on your age or how long you have until retirement, the possibilities — and recommendations — are endless.
Here’s one popular example. In the 2006 The New York Times bestselling book “All Your Worth: The Ultimate Lifetime Money Plan,” U.S. Senator and former Harvard professor Elizabeth Warren created the 50/30/20 plan, which, in essence, encourages Americans to divide their after-tax income into three large buckets.
- Needs (like mortgage or rent, utilities, healthcare, food, and childcare expenses) should be paid with 50% of your budget.
- The next 30% should go toward wants, like dining out, cable/tv, and shopping that goes beyond basic needs.
- The remaining 20% should go toward savings and retirement planning, assuming you’ve paid off all your credit card debt.
On the other hand, Fidelity investment managers recommend having at least one times your salary saved for retirement by the time you turn 30, three times your salary by your 40th birthday, six times your salary by your 50th, eight times your salary on your 60th birthday, and 10 times your salary saved by age 67.
If you're behind, don't fret — a solid savings plan is not out of reach. The key is for you to take action and begin saving today.
Building Your Safety Net: The Importance of an Emergency Fund
Financial guru Dave Ramsey recommends starting by saving $1,000 in an emergency fund ($500 if you make less than $20K a year) that you won’t touch for any reason other than an actual emergency. That way, when your car or home needs an unexpected repair or you face an unexpected medical bill, you’re prepared for it.
Sounds easy, right? Well, after the year we had in 2020, many of us are rebounding from (or still facing) unemployment, medical bills, and a number of other unexpected hits to the pocketbook. This led many of us to turn to credit cards, raising our balances to their highest levels in history.
Make it your goal to hit $1K as quickly as possible while making all of your minimum credit card payments on time. Sure, that might mean passing up on those get-it-off-the-lot, end-of-season truck sales or even upgrading to a fancy, new big-screen in time for the Super Bowl, but it’s worth it. The relief you’ll feel knowing you have a financial safety net ready to help you catch an unexpected expense is worth more than a new TV.
Take the Leap: Start Your Saving Journey Today
Once you’ve built your emergency fund, Ramsey recommends switching to paying off debt. Today, debt (and especially credit card debt) impacts everyday Americans’ lives more than ever before — we’re collectively carrying a whopping $1 trillion in credit card debt. In 2020, the average West Virginian had $7,563 in credit card debt — a mountain of money to pay back that makes it incredibly hard to save for the future.
So, before you can begin to save, focus on paying back the money you owe first. The interest rate you’re paying to borrow that cash and pay it back over time is much higher than what you’ll earn while saving and investing your own money — and in this case, you’re actually losing money every month. Here’s an example:
- If you have $10,000 in a savings account but $20,000 in credit card debt, do you know what you really have? A negative net worth of -$10,000.
- It’s sad but true—if you’re $20,000 in debt (and paying high-interest rates on that borrowed money), having $10K in savings isn’t really doing anything for you.
Financial Health Check: Understanding and Managing Your Finances
Once you’ve got your emergency fund built and stocked away in an interest-bearing savings account, take a close look to see where you’re at from a financial standpoint. That means creating and following a budget. Simply put, you won’t know how much money you can use to pay off debt or save unless you know where your money is going.
Forget about finding pencil and paper, trying to remember everything you do or every dollar you spend. Online and mobile banking, as well as the large variety of digital spreadsheets and free mobile apps out there, can help make budgeting a breeze.
Former financial advisor, investment specialist, and blogger Jeremy Vohwinkle says you can create a personal budget in just six steps:
- Gather your financial paperwork, including all of your bank statements, bills, and paystubs.
- Calculate your income using your net income (or take-home pay) amount. If you are self-employed or have outside sources of income, such as child support or Social Security, include these as well.
- Create a list of monthly expenses. Beyond the necessities, don’t forget to include potential budget-busters like eating out, vacations, and recurring entertainment (such as Netflix, high-speed internet, etc.) Your recent bank and credit card statements from the last three months can help you identify all your spending.
- Determine your fixed and variable expenses. Fixed expenses are those you pay the same amount for each time, like mortgage or rent payments, car payments, fixed-cost internet service, trash pickup, and regular childcare. Variable expenses are those that change each month, such as your gas, food, and clothing costs. Again, your recent statements can be a huge help in determining how much you spend (on average) each month.
- Total your monthly income and expenses. If your income is higher than your expenses, you’re off to a great start. This extra money means you can pay off even more debt (or save even more money!)
- Make adjustments to expenses. At the end of the day, you want to have a zero-based budget, which means every dollar is accounted for. So, if your expenses are more than your income — or you wish to pay off additional debt but don’t have the money to do so—you’ll need to make some changes.
You can do it! Any little sacrifices you can make today (like cutting back on morning mocha on the way to work, taking your family out to eat one fewer time each week, or switching to a lower-tier cable or satellite package) can pay off big-time in the long run!
If you have high-interest credit cards or loans, explore transferring or consolidating your balances with a personal loan or a credit card account that offers a lower interest rate. You’ll still owe the same amount that you’ve borrowed, but a switch to one of these financial products could help you pay much less in interest — allowing you to save more or help pay for additional budget items.
Next, Ramsey points to the benefit of having a fully fleshed-out emergency fund with three to six months’ worth of emergency expenses in savings. The exact amount will be different for each of you reading this article — to find your goal number, calculate your total “needs” (as described above in the 50/30/20 plan) and multiply that total by at least three.
Investment 101: Securing Your Future by Investing in Yourself
Once you’ve paid off debt and have three to six months of savings in the bank, start putting your money to work for you. When you save or invest money, you’ll earn interest (instead of paying someone else), which means your money will make money!
Isn’t that a cool concept? Here are a few ways to begin saving or investing today:
Interest-earning checking accounts
In most cases, a checking account is the one you use daily when buying items or paying expenses. This account allows you can make deposits and withdrawals. It’s primarily tied to your debit card and any paper or electronic checks you may write each month. Be sure you have a checking account that earns interest — otherwise, you’re turning down free money!
Savings accounts
In most cases, savings accounts are for the money you want to set aside for the future. Money put into savings accounts earns interest as well, and depending on the type of account you open, interest rates may vary. For example, a simple savings account that comes with a low opening balance requirement of $50 will earn you a fixed interest rate no matter what your balance might be, while a money market saving account allows you to earn higher interest rates as your account balance grows.
Certificates of Deposit (CDs)
A CD is a bank product that offers you a higher interest rate in exchange for a promise to keep the money you’ve deposited invested for a certain amount of time. In most cases, the longer you promise to keep your money invested with your bank, the higher your rate of return will be. Be sure to weigh rate increases with how long you can be without those funds — waiting just another few months could bring you significantly more money in return!
Individual Retirement Accounts (IRAs)
IRAs are retirement-focused products that can offer you significant tax advantages depending on when (and how) you invest your savings. For example, any money you contribute to a Traditional IRA is tax-deductible, but you’ll pay taxes upon withdrawing those funds in retirement. On the other hand, a Roth IRA allows you to contribute money that’s already been taxed — and when you retire, that money comes to you tax-free.
The Time is Now: Kickstart Your Future Savings Today
If you’d like more information about the savings account that’s right for you, we’d love to help! Give us a call at 304-876-9000, send us an email, or visit your nearby Jefferson Security Bank location in Shepherdstown, Martinsburg, Charles Town, Inwood, or Sharpsburg to ask questions and open your new savings account today.