Latest posts by Kumiko Ehrmantraut (see all)
- What You Need to Know Before You Invest in Mutual Funds - December 11, 2019
When I spent money carelessly, I plunged deeper into debt. I struggled to make minimum payments, and I wondered how I would put food on the table. I was nothing like the woman and mom I have become today (see for yourself). But, through a lot of trial-and-error, my life turned around. My debts disappeared, and I had money in the bank. The goal of this blog is to empower women like you, and that is why I want you to have a plan for the day you have over $1,000 in your checking account.
I found success by creating a budget for each pay period. Before I receive my check, I have a plan for what I will do with the money. I learned the hard way, when I didn't have a plan for my money, it ended up disappearing. You work hard for your money, don't squander it. Here are some things to consider when you have $1,000 in your checking account:
- Evaluate your checking account
- Build an emergency fund
- Protect your family with life insurance
- Automate your investing
- Remain focused on your success
Evaluate your checking account
Do you know what fees you are paying for your checking account? A recent survey revealed people pay over $160 a year in maintenance fees alone for their checking accounts. Sometimes free checking accounts can be a little expensive because of overdraft fees, ATM fees, and other costs that are not always spelled out clearly.
If you pay your bank a fee for a checking account, then consider opening a free account with Radius Bank. While Radius Bank has a physical location in Boston, it pretty much is an online bank. If you have looked up your account balance on the internet or snapped a photo of your check to deposit it via your phone, you already bank online. Radius Bank's Rewards Checking account is free, and it pays 1% cashback on purchases when you use your debit card as a credit card (what they call a signature-based transaction). So, not only is it free, but you get money back, too. If you have $2,500 directly deposited into your account or keep a balance of $2,500, then you will earn 1% APY.
Because online banks usually don't have physical locations, they reimburse ATM fees. Radius Bank is no exception. You will not pay those fees. Oh, they'll take care of your first order of checks. Download the Radius Bank app on iOS or Android and start saving fees.
Build an emergency fund
Having an emergency fund helped me get out of debt. As much as we like to think we are in control of our lives, the sad truth is life happens. I didn't plan on getting into a motorcycle wreck and being out of work for weeks. Having money available to take care of emergencies will help you improve your financial standing.
There was a study done by the Federal Reserve that reported most Americans could not handle a $400 emergency from their checking or savings accounts. If they were to face such a setback, it would mean they have to go into debt or, worse, further into debt. Whenever we go into debt, we are promising to use future dollars we haven't even earned to pay for something today. Debt limits what we can do, which is why having an emergency fund can help you tremendously. Here are some tips to get you started:
- Set a goal in mind. I recommend you shoot for $1,000 — at first — in your emergency fund. You really want about three to six months worth of expenses in an emergency fund, but $1,000 is a good place to start.
- Choose the right savings account. Two popular online banks for savings are Chime Bank and CIT Bank. You can open a checking and savings account with Chime Bank. When you use your Chime Bank debit card, it will automatically round up your purchase and deposit the difference into your savings account. This is a good way to incrementally add to your savings. CIT Bank offers a Savings Builder that will pay 1.85% APY in a savings account where you have at least $25,000 invested … or, open it with $100 and deposit $100 a month.
- Automate your savings. If you do open a CIT Bank Savings Builder account and deposit $100 a month, then will get you to $1,000 in less than a year. No matter where you decide to put your emergency fund, do yourself a favor and deposit money directly every month.
Protect your family with life insurance
Those of you who have been with me on this blog know before I had my son, it was all about me. Once I gave birth, my life dramatically changed. Suddenly, my baby became the center of my world. It was all about him and not about me. As a single mom, I need to make sure if anything were to happen to me that he would be taken care of. One of the best tools people use to protect their families is life insurance.
I think life insurance should do three foundational things:
- Cover your burial expenses
- Maintain your family’s standard of living
- Achieve financial goals for your family
There are several different kinds of life insurance policies. The three most common policies are term life, whole life and universal life.
Term life gets its name from the fact that the policy is good for a specific “term” — 5 years, 10 years, 20 years, or 30 years.
Whole and universal life are different from term life because they cover a person's entire (whole) life. Because of this, they are sometimes referred to as permanent insurance. As long as you pay your premiums and your policy is in good standing, you have coverage. Upon your death, no matter when, your family will receive a death benefit. Another difference is they have some kind of “savings” account attached.
Whole life and universal life insurance policies build up a cash value over time. When you pay your premium, part of the money covers the death benefit and part build up the cash value portion. It will either earn a minimum interest rate or the current money market rate.
Term life insurance is the most affordable of the three because all it pays is a death benefit. This policy is kind of like auto insurance: If you pay the premium for the term of coverage and do not have a claim, then no benefit is paid out. As you work to determine what kind of policy is the best for your family, consider if you want your life insurance policy tied to your investments.
Insurance experts and financial planners make good cases for the different kinds of policies. Ultimately, as an insurance agent will let you know, the decision comes down to what you decided is best for your family.
While term life is not permanent insurance, it sometimes can be converted to a whole life policy before the term expires. People who are looking to get out of debt might look at term life as a temporary solution. If you conclude term life is right for your situation, a good place to get quotes for term life insurance is through Bestow. You don’t have to go through any lab tests or medical exams. It is a quick, painless way to start protecting your family. You can apply online in as little as 5 minutes, and they have plans starting at $5 a month. On Trustpilot, 94% of the reviews say Bestow is either Great or Excellent. Take a few minutes to see if Bestow is right for you.
Automate your investing
I mentioned earlier you should automate your savings. Now, I would like you to consider automating your investments. We are delighted to work with Ellevest, a robo-advisory firm. Ellevest was created to focus on the unique investment challenges of women. Before you decide to automate your investing with Ellevest, they share these principles:
- Pay off high-interest debt
- Create an emergency fund
- Contribute to workplace 401(k) up to employer match level
- Invest a percentage of your income on an ongoing basis, in a well-diversified, low-cost portfolio that takes into account your goal for this money
Ellevest will look at your goal, your timeline to get there, and create a portfolio for that goal that will manage the risk and get you to your goal with 70% likelihood. Ellevest is a different kind of account which also offers a plan with no minimum, so investors can start investing with just $1. Ellevest has agreed to give $50 to readers of The Budget Mom who sign up for the service. Find out if you can reach your financial goals with Ellevest here.
Remain focused on your success
Everything I have shared here should be considered a starting point that will require your ongoing attention and commitment. For you to get out of debt, take care of your family, and build wealth will require you remain focused on your plan. You know how organized I love to be, so I want you to have a plan for everything.
- Create a plan for your money (a budget): This is The Budget Mom blog, so you know I am going to talk about a budget. If you need help getting started, get my free Budget Crush Workbook
- Create a plan for your meals: Meal planning can help you save money, be organized and be focused. Learn how to create a meal plan.
- Create a plan for emergencies: I wrote about the emergency fund already, but I want to stress how important it is. Learn how to create an emergency fund.
- Create a plan to be successful: Read the steps I took on my debt payoff journey, how to create a plan to pay off debt or save more of your income.
- Take advantage of The Budget Mom's free resources: I feel strongly about helping women become financially independent, so be sure to download the free resources to build a brighter future for you and your family.
Keep working to improve your life and the life of your family. Remain focused and persevere. You have the tools to create a better tomorrow, but you need to start today. What are you waiting for?
I’ve been following you for a bit now. You’re one of my favorites! I love how real you are. My mom was a single mom trying to make ends meet back in the day. I know you would have been so helpful and inspiring to her. You’re inspiring to me!
Thank you for writing this article Miko! Sometimes it’s just really helps readers when the material is broken down into small actionable steps. I can totally relate to several of the topics that you’ve discussed in this post. However; My issue is not with paying off debt or building an emergency fund, it’s not wanting to withdraw from it even if there’s a real emergency. I’m getting better though. lol
These are great ideas, but it seems counter-intuitive to suggest a checking account that requires a $2500 minimum when encouraging people to eliminate debt. How is that money working for you? And how does this kind of an account work when using your BBP system?
Great article! The one thing that has helped me tremendously was setting up a direct deposit from my paycheck into my savings account. That way I wont be tempted to spend it. I also named the account “Freedom” so whenever I transfer money out I am literally taking money from my goal of financial freedom.
Wow, this is genius! I am going to do this!
you are my biggest inspiration! I just signed off for Ellevest! Time to Invest =)
Should you be saving your $1,000 cushion in your checking account if you have pressing debt, such as credit cards? Thank you!
Yes! Most checking accounts have a minimum per month anyway, if you drop below that minimum they charge you fee’s, but the biggest reason is it is a cushion so that if something unexpected happens you are covered and less likely to turn to your credit cards!
Me again, I keep $2000 running balance a month in my checking account, my bank has set a minimum of $1500, so I really have a $500 cushion. I have been following the budget mom for a year now and have learned a lot, my finances are in a much better place and I now know where my money is going. I am debt free except for my car loan which is 3.99% interest rate and I owe about $5000, the lowest from all my previous credit cards. My goals for 2020 is to pay off my car loan and to save more!