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3 Tips To Build Up An Emergency Fund This Year

By Gina Horkey, GOBankingRates.com (TNS)

Life is full of twists and turns. So when an unforeseen home repair, illness or job loss happens, having a stash of cash set aside can make the difference between a financial disaster and a minor inconvenience.

However, roughly one-third of American adults (nearly 72 million people) have no emergency savings to fall back on if they had to deal with a financial crisis, according to a survey released by NeighborWorks America, a community development organization. A recent survey by GOBankingRates found that 62 percent of Americans have less than $1,000 in savings.

Although spare cash might sometimes seem hard to come by, building emergency savings doesn’t have to be difficult. Here are three easy tricks you can use to quickly save for an emergency fund in 2016.

SWITCH TO A HIGH-YIELD SAVINGS ACCOUNT

Typically, the best place to keep an emergency fund is in a savings account with a bank or credit union. These accounts offer easier access to your money than certificates of deposit, or CDs, but not so easy that you’re tempted to access the funds on a whim. By keeping your money in a savings account, it remains safe, and you’ll earn better interest than you would on your checking account — and certainly better than if you kept it under your mattress.

When it comes to savings yields, all accounts are not created equal. Current annual percentage yields on a basic savings account at many banks range anywhere from 0.01 percent to 0.25 percent. Although this is better than earning nothing, your money is not growing as fast as it could. There are, however, a few banks that offer higher-than-average savings account rates. For example, the savings account from MySavings Direct offers an impressive 1 percent yield.

If you were to put $10,000 in a MySavings Direct savings account and let it sit for a year, you would earn $100 in interest. If your interest rate was only 0.01 percent, you would earn $1; with a 0.25 percent rate, you would earn $25.

By moving your emergency savings into a high-yield savings account, you have the advantage of earning a higher interest rate and growing your funds faster, while still enjoying the safety and accessibility of a simple savings account.

LEVERAGE CASH-BACK REWARDS CARDS

One of the biggest reasons to have an emergency fund is to avoid going into debt when you have an unexpected expense. So it might sound counterintuitive to suggest using credit cards to build up your emergency fund, but that’s just what John Rosenfeld, head of Everyday Banking at Citizens Bank, suggested you can do.

“Using a cash-back rewards card for your everyday purchases can help you save money, provided you pay off your full balance each month,” he said. Credit cards can offer up to 1.8 percent cash back on your purchases, which can quickly add to your savings balance. Plus, a credit card that gives you an extra bonus can help grow your savings as well, he said.

Let’s say you have Chase’s Freedom card, which offers 5 percent cash back on up to $1,500. If you spend $1,500, that’s an extra $75 you’ll get back. You can also get unlimited 1 percent cash on all other purchases, plus a $150 bonus after you spend $500 on purchases in the first three months following your account’s opening. So if you charge $10,000 on your credit card on all other purchases in 2016, you can potentially have at least $325 to add to your emergency savings fund.

ELIMINATE ‘SLOW LEAKS’

Bank fees are some of the most common, yet unnecessary, expenses paid by consumers, according to Benjamin Glaser at DealNews.com. Take a look at the average fee for these three banking services, according to Money-Rate.com’s mid-2015 survey of bank fees:

—Checking account monthly fee: $13.09

—ATM fee for non-customers: $2.71

—Overdraft fee: $32.44

Getting rid of just the most common three fees each month — ATM, overdraft and monthly maintenance — could save you more than $500 a year. Finding a fee-free checking account could save you more than $157 alone.

Other common fees you might be paying include 401(k) fees, investment fees and cash advance fees. Check with your financial planner or financial institution to find out if you’re overpaying in fees. A typical American who starts earning a median salary at age 25 is expected to pay $138,336 in 401(k) fees over their lifetime, according to The Motley Fool. Since the median expected retirement age is 65, according to a Gallup poll, that’s nearly $3,460 a year for 40 years.

Glaser also thinks that the new year is a perfect time to review your phone bill for additional ways to save. “Carriers have introduced a confusing array of new payment options over the last year, but if you know your phone usage habits well, you could save money,” he said. With low-cost providers like Republic Wireless and Ting offering monthly service for around the price of a few cups of coffee, now’s the time to really take advantage of the potential cost-savings.

Jeffrey Christakos of Westfield Wealth Management found his money leaking in the form of eating out for lunch. He suggested making lunches at the beginning of the week and freezing them until you plan to use them. “We would take a sandwich with us to work and let it thaw out during the morning hours,” he said. “Otherwise, we would have gone out to lunch and eaten random meals at expensive prices.”

It can be well worth your time to detect and eliminate slow leaks. With a little legwork, your annual savings could be more than a few thousand dollars.

GOBankingRates.com is a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.

© 2016 GOBankingRates.com, a ConsumerTrack web property. Distributed by Tribune Content Agency, LLC.

Photo: Your financial life raft. Chris Potter via Flickr

 

How Your Ego Is Sabotaging Your Retirement

By Gina Horkey, GOBankingRates.com (TNS)

As diligent as you have been about saving for retirement, your ego might have been quietly working against you the whole time. Even the best-laid plans fail, and your retirement plan is no exception. Here are three ways your ego is rearing its ugly head and how you can regain control of your financial plan before you retire.

UNREALISTIC EXPECTATIONS

Many newly retired people find that their reality doesn’t live up to the grandiose dreams they had for their retirement. As you save for retirement, you should periodically give yourself a reality check.

Statistics show that you should lower your expectations and save more aggressively. According to a survey conducted by the Insured Retirement Institute, only 27 percent of baby boomers are confident that they will have enough money to last through their retirement (which is down from 33 percent a year ago).

If you find yourself part of this 27 percent, you will want to ensure that your confidence is not unfounded. One way to make sure that you are adequately prepared is to calculate your projected expenses — the costs to maintain your current home, transportation, health care, and other predictable expenses — and determine whether any changes to your current budget are necessary.

Don’t let overconfidence wrongly convince you that you don’t need to downsize your lifestyle. Few people have the ability to replace 100 percent of their preretirement income, but by eliminating nonessential expenses and saving for monthly bills and emergencies, your likelihood of building a substantial nest egg is greatly increased.

NOT MAKING TIME FOR TOUGH CONVERSATIONS

Doting on your grandchildren is easy. Having an honest conversation with your adult children about what your financial transition into retirement will really look like can be difficult.

It’s hard to go from raising your children to discussing finances with them — and perhaps even heeding their advice — but it helps to be candid with them. If your situation looks bleak, they might be able to help.

According to the Pew Research Center, nearly 23 percent of adults with retired parents contributed some sort of financial assistance during 2012, and 72 percent of those adult children said their contributions were for ongoing expenses. Regardless of your comfort level with your retirement account balances or your and your family’s busy schedules, you need to make these conversations a priority. In the event that you’re not as ready for retirement as you think, or the market unexpectedly goes south, you might be faced with looking to your adult children for some form of support, whether it’s financial or logistical.

FEAR OF DIVERSIFICATION

Just because you’re heading toward retirement doesn’t mean you have to settle for the same low-risk investments that everyone else seems to be chasing since the recent market downturn. You also don’t want to expose yourself to unwarranted risks that you won’t have time to recover from, however. A 2015 report from Fidelity Investments showed that baby boomers are keeping too much of their assets in the stock market — in fact, 10 percent of people ages 55 to 59 have all of their 401(k) assets in stocks.

To maintain a comfortable standard of living and maximize your retirement benefits, it is beneficial to seek out low-cost investments that offer steady returns while minimizing short-term risks. Consult a financial advisor about the benefits of diversifying beyond traditional stocks and bonds. Options like index funds, exchange-traded funds and blue-chip dividend stocks can provide adequate returns along with favorable expense and fee structures that make them viable alternatives for boomers.

Gina Horkey writes for GOBankingRates.com (), a leading portal for personal finance news and features, offering visitors the latest information on everything from interest rates to strategies on saving money, managing a budget and getting out of debt.

© 2015 GOBankingRates.com, a ConsumerTrack web property. Distributed by Tribune Content Agency, LLC.

Photo: 401(K) 2012 via Flickr