Wealthy Turtle

This morning I read an article on Yahoo Finance titled 12 Times Being Cheap is Totally Worth It.   The author shares 12 examples of items where you don’t need to spend a lot of money to get good quality.  I’m all for saving money at the supermarket whenever possible, and I also love shopping at Costco because there are so many great deals to be had.

Below I have listed each of the 12 examples along with some thoughts of my own.  

Shampoo.  I don’t put much thought into shampoo but my wife swears it pays to spend a little extra.  I’m fine with using whatever is on sale or shopping at the dollar store.

Produce.  The article mentions that frozen fruits and vegetables are generally cheaper than fresh, though I would caution that isn’t necessarily true.  There’s a farmer’s market nearby where I often stop for fresh fruits and veggies and the price can’t be beat.  But we also keep some frozen vegetables on hand, especially during the winter when it is harder to find them fresh.  I think we have some frozen corn in the freezer right now as well as some berries and mixed fruit.  We like to use those in place of ice when making smoothies.

Prescriptions.  I always ask the pharmacist for the generic version of prescriptions because they are just as effective for a fraction of the cost.  The same goes for over the counter pain killers and cough syrup.  Why pay more just for a name?

Water.  Bottled water is a total rip-off, but it is something I’m guilty of buying from time to time.  I know filters work great and all but the convenience of grabbing a cold bottle of water out of the fridge on my way out the door is something I appreciate.

Contact Lens Solution.  I don’t wear glasses or contacts so I don’t have much opinion on this one.

Tools.  As a do it yourselfer, I don’t completely agree on this one.  While it’s usually not necessarily  to spend top dollar on tools, you don’t want to go too cheap or you’ll end up with something that doesn’t work.  I’d say I usually buy mid-ranged tools…they may not have all the bells and whistles but they have enough of them and I’m confident they’ll last for a while.

Coffee.  Umm, no.  My wife and I are both coffee-lovers and the generic brands just don’t cut it in our house.  I’d rather spend a few extra bucks and grab a bag of Starbucks when it goes on sale.  I NEED my morning cup of coffee!

Cell Phone Plans.  We have a family plan through Sprint and I’m happy with that.  I spend more than the author of the article does but it’s not the most expensive plan either.

Toothpaste.  I don’t have any brand loyalty when it comes to toothpaste.  We buy whatever is on sale and with coupons you should never have to pay full price for a tube of toothpaste.

Pantry Staples.  We almost always buy the generic version of items like cereal, rice, and canned goods…with a few exceptions.  Anything but Hellman’s mayonnaise is gross to me.  And as an avid griller I like to try different barbecue sauces…the cheap stuff usually isn’t very good.

Toilet Paper.  Completely agree with the article…Scott’s toilet paper is horrible, but the store brand is usually just fine.

Wine.  My wife and I both enjoy drinking wine and there is definitely a difference in quality as price increases.  We usually shop in the $9 to $12 range for a 750ml bottle and I find that’s a nice balance between quality and price.  The cheaper stuff is usually not very good.

In the end, it’s all about trade-offs and balance.  I’m more than willing to shop smart and save some money on most items so I can afford to spend a little bit extra on a few items that are more important to me.

Your son’s foot slips while backing into the driveway and he crashes right through the garage door.  A water pipe bursts and floods your basement.  Your furnace dies in the middle of winter. Your company is downsizing and you suddenly find yourself out of a job.

Life is full of financial emergencies like these, which is why it’s smart to establish an emergency fund to cover unexpected expenses or a loss of income.

But how do you go about setting up an emergency fund?  Where do you get the money from?  Where do you keep it?

Have no fear…we’re going to answer all of your questions about emergency funds below.

How Big of an Emergency Fund Do You Need?

There are many opinions as to the optimal size of an emergency fund.  One common rule of thumb is that it should be big enough to cover three to six months of your living expenses.  Some people suggest you need at least a year’s worth of living expenses while others believe you can get by with just $1,000.

We recommend a minimum of three months expenses, but ultimately the size of your emergency fund will depend on your own personal circumstances and monthly bills.  Someone who is frugal and doesn’t have many expenses wouldn’t need as much as someone with a hefty mortgage, multiple car payments, and a host of other bills to pay.

Of course if you did suffer a long-term financial emergency, such as a job layoff, you’d want to trim your expenses to the bare minimum to make your money last as long as possible.  You don’t want to miss mortgage payments, so it could be time to scale back your cable package and stop eating out every Saturday night.

Do you have any dependents?  The more people who are relying on your paycheck the larger your emergency fund should be.  This is not only because you have more mouths to feed, but also because there are more opportunities for an emergency to take place.  My kids have made several trips to the emergency room and while none of them were particularly serious they were all expensive.

How to Fund Your Emergency Fund

Perhaps the most frustrating part of creating an emergency fund is finding money to get it started, especially if your budget is already stretched to the limit.  Here are some tips to help you build up an emergency fund no matter what your current resources are.

• Start small.  Putting away $20 per paycheck may seem futile at first, but it is important to get the ball rolling and start saving something.  Thanks to compound interest, even small amounts will grow over time.  And you can always increase your savings amounts when you can.
• Get a bonus at work or a fat tax refund check?  Put in towards your emergency fund instead of spending it.
• Get a part-time job.  It doesn’t have to be a lifetime commitment, but a second job can give your emergency fund a healthy boost.  To stay motivated you can set a goal such as, “I’ll work two jobs until my emergency fund account reaches $5,000.”
• Sell your extra stuff.  We all have stuff stored around the house that we know we’ll never use again.  Why not turn your trash into cash?   You could hold a yard sale, sell it to a consignment shop, or sell it online at sites like eBay or Craigslist.  My wife found a neat Facebook group where moms from our area post items for sale.  She’s already sold a handful of items and made about a hundred bucks on stuff I was going to throw away.
• Dig under couch cushions and car seats.  Keep a jar at home and empty all the spare change from your pockets into the jar every day.  You’d be surprised how quickly it will add up and once the jar is full you can deposit it into your emergency fund.

Where to Keep Your Emergency Fund

Emergency fund money should be kept where it can earn some interest and where you can access it quickly and without penalty.  It also needs to be somewhere safe.  Remember, your emergency fund is for saving, not investing.

Where NOT to keep your emergency fund:

1. Under your mattress.  While we do recommend stashing a small amount of cash (say $200) somewhere around the house for minor emergencies, keeping large sums of money under your mattress or in a drawer is foolish.  It could easily be stolen or destroyed in a fire or flood.
2. The stock market.  Remember, you want your emergency fund to be safe and easily accessible and stocks are anything but.  You’ll incur fees to sell stocks and what if the market is down when you are forced to sell?  Bad investment choices could sink your entire fund in no time.
3. Certificates of Deposit.  While CDs are safer than stocks and they do earn interest, you will usually be charged early-withdrawal penalties if you have to cash them out early.

The Best Place to Store Your Emergency Fund

A high-yield online savings account offers the perfect balance between safety, liquidity, and earnings.

Your funds are FDIC insured so you won’t have to worry about losing money like you would in the stock market.

Your money is easily accessible through a bank transfer, or if you have a checking account set up you can even write a check or use an ATM to withdraw money.

You’ll earn interest.  You certainly won’t get rich given current interest rates but at least your money will be working for you and growing a little.

We have our emergency fund in a Capital One 360 Savings Account and we recommend you do the same.  It’s easy to set up and there is no minimum balance.  If you want you can set up automatic deposits to make sure you contribute to the account every month and keep it growing.

Interest rates are much better than those found at traditional brick and mortar banks, and you can set up multiple sub-accounts and label them however you like.  Having multiple “buckets” to place your savings helps you track your progress towards various savings goals.

You can go online anytime and check your balances and transfer money around between sub-accounts and even to and from a traditional bank account.  And if you open an online checking account you can write checks or withdraw money from an ATM.

Obviously the combination of safety, liquidity, and earning potential make a high-yield savings account the best place to keep your emergency fund.