I'm making my first post just 2 short months into my investing career. But don't worry, I'm going to take you back to the beginning, all the way to my inspiration for getting this started, in fact, so you haven't missed anything. In this blog, I plan on telling you my story, sharing what I learn as I go along, and give any advice I discover as I progress my way to what I hope is a glorious retirement.
My story begins toward the end of 2012. I turned 27 in November and have been trying to work my way through school for some time now. It was around my birthday that I determined I would use my tax return from that year to put towards tuition, use that cost as a tax write off, and use that money for tuition the following year, repeating this process until the day FINALLY came when I would graduate and get myself a big boy job. I've worked in a restaurant almost constantly since two months after my 16th birthday, and I'm obviously not interested in doing that for the remainder of my days. I plan on making big bucks, working my dream job, enjoying what I do, and all that good stuff, and the sooner the better!
Anyways, back to the task at hand. This whole "putting my money away for later on" thing was an entirely new concept for me. For as long as I can remember, I've always been the kind of person who would have my money spent before I even had it. Thus why I got myself in trouble with credit cards back when I was just out of high school. I have not held a credit card now for probably 7 or 8 years just because I didn't want to get back in the habit of buying something only to pay for it several times over later, just because I knew that's what I would do. I plan on changing that philosophy soon, but more on that later.
So like I said, I aimed to put this money towards tuition, but obviously would not have my tax return back in time for the beginning of the spring semester. So I made a game plan: I would open up a savings account of some kind, earn interest on that money, and insure that it would not be touched until the time came to pay the costs of going back to school. That's when I began researching different banks, their rates, and what else they offered. What I discovered was that most of the local banks in my community offered very poor interest rates, especially if you deposited less than $25,000, and I obviously was not even close to having that much, so that inspired me to look elsewhere.
Now most banks around my area were offering .01-.05% annual interest. Yes, that is one hundredth of one percent, meaning if you deposited $10,000, you would be earning $1 per year in interest, maybe slightly more depending on how often said bank compounded the interest. Because of this, I decided to look at banks online. I had seen commercials for a few of these, Ally in particular lately. As I began researching their interest rates, I was amazed at how much greater they were, when compared to local banks. I understand banks that have local branches have greater costs because they actually have buildings and employees to maintain, but the difference is astounding. When I first opened my account on Ally, I was earning .90% interest. Still not great, but much better than that .0001 per dollar I would earn locally.
My Ally account now earns .84% as interest rates have continued to come down industry-wide. Not a huge deal, but definitely something to make note of and keep informed of. A great way to do some quick research is with bankrate.com. Here, you can compare interest rates for a variety of different accounts.
As time went on, I started reading others tips and advice on saving and investing. At this time, my girlfriend and I also began planning on moving into something larger than our 550 sq ft apartment. It was just getting to the point where there wasn't enough room for both of us and our two dogs. So we started adding a percentage of each of our incomes into a fund to be used for things at our new place and also for emergencies. I had never done anything like this before, so I was unsure what to expect. We started by adding 10% of everything we made into it. As a bartender, I was obviously adding money daily, while she was contributing every two weeks. The best way we discovered to do it is to add it to an envelope, while keeping track of how much you're adding on the front. I drew three lines creating four columns, and included the date, money added, and total inside with each contribution. Once the fund would reach a certain threshold, we would deposit it in our joint savings account that we created solely for this purpose, for fear that fire or theft would take away everything we earned.
Like I said, we planned on using this fund for emergencies and for things for our new place. When it comes to how much to put away for emergencies, it seems it varies depending on your current situation. Less if you are single and live alone, more if others depend on your income. The basic idea seems that a single person should save two months of their cost of living, while a family of 4-5 should put away six to eight months. I never had done anything like this, so seeing an account of mine...err, ours having an account balance of four figures was quite refreshing. I often ask myself why I never did anything like that before rather than stressing how long after the due date will I be able to pay the bills. I like to chalk it up to immaturity, because I hope it means I'm past that part of my life.
Bottom line: if you don't have an emergency fund with at least two months of your total costs saved up, get on it! If you don't think you can do it, just start at 10% of what you make. Don't even think about it, just put it away. I was amazed at how easy it was to start, and now I've been doing 20% constantly without hesitation. And it's a good thing we did because I had no idea just how much furniture was going to be. Granted we got exactly what we wanted and we love it, it cost so much more than I dreamed it would.
Another thing I discovered along the way was mint.com. I had heard about people using it and how great it was a few years back, and even created an account at one point back then, but never did anything with it. But as it turned out, I was missing out. Mint does a great job of showing you a sum of all of your accounts (and your debts), how much you spent, how you could be doing better, and so on. No matter how well you might be doing, Mint continues to give you advice to save you money and prepare you for the future. And best of all, it's free! I'm a big fan of free.
So I got my tax return, opened up my high(er) interest rate savings account, put extra money away, and have done what I can to prepare myself for the future. Time to start investing!
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