Starting an Emergency Fund: ‘How to’ and ‘Why to'

64% of millennials said that starting an Emergency Fund was their top financial goal for 2016.  (Source) 

When you have an Emergency Fund set up with 3-6 months worth of expenses in it, life is less stressful. Having that safety net means you don't need to worry about a vehicle emergency, job loss or other financial problems. You've got it taken care of and are free from the pressure and stress of the unknown. 

How do you start? 

Some experts recommend setting up a Money Market Account for this. They will earn some interest and usually give you check writing options. Having the funds in a separate account will make it harder for you to accidentally spend it. 

Once you have the account set up, set a goal and determine the amount that you will put in every pay period. This will vary for each person, depending on the situation. Experts recommend having 3-6 months worth of expenses set aside. The faster you can get it saved up, the better. 

What if you struggle finding money to set aside?

It's always hard to find extra money to set aside. If you can, pay yourself first. As soon as the pay check comes in, put an amount in the Emergency Fund.

If you really have nothing to spare, it's either make more money or cut an expense.

Here are a few ways to make extra moolah: 

• Pick up more hours at work
• Look into odd jobs: dog walking, baby-sitting, farm chores, cleaning, etc.
• Sell some stuff: clothes you never wear, extra toys/household items, etc. at garage sales or online buy/sell sites
• Have a hobby? Make it pay! Photography, woodworking, crafts, garden produce, flower bouquets, etc.

Or, a few ways to cut expenses:

• Quit TV (or call and see if loosing a few channels could cut your bill) 
• Cook at home more, it's cheaper than eating out
• Call your phone provider and see if they'll give you a better deal
•  If you have a membership that you never use, cancel it
• Get movies/magazines/books from the library for free instead of going to the theater, renting, buying and subscribing

Any extra money made or saved gets put into the Emergency Fund right away before it gets spent on other things. 

Do you have other ideas? Share them in the comments!

Peoples State Bank, Member FDIC

Starting Your First "Real Job"? Retirement Savings Accounts Explained.

Millions of Americans will graduate from college this spring, ready to enter the workforce. Are you going to begin earning wages from a "real job" for the first time?  Don't overlook saving for retirement. 

Saving early gets you the most out of the money you set aside for retirement. Because of compounding interest, the money you save now is worth more than money saved at a later time.

Saving for retirement is more important than ever. Pension plans are becoming rare. On average, Americans live 22 years longer than they did at the creation of Social Security in 1937.

Today's youngest members of the workforce will be responsible for most of their own retirement income. So, start saving.

Here's a quick overview of the most common investment accounts used to save for retirement:

 

 

IRA

If your employer doesn't offer a company retirement plan, start your own nest egg. Open an Individual Retirement Account (IRA). 

These accounts provide tax advantages that a regular savings account does not.

The maximum contribution to an IRA is $5,500 per year if you're under age 50. The company or bank managing your IRA account will invest your money for you, so you receive interest.

It is easier to withdraw from an IRA than a 401(k). But, both have fees and penalties if you take money out before retirement. 

401(k)

 

Your employers will direct this type of retirement account. You'll just chose how much is taken out of your paychecks, before taxes. This money is taxed when you withdrawal it. 

The current maximum annual contribution to a 401(k) plan is $18,000. Many employer plans include a matching contribution. Then, your employer will put money in your account on top of what you put in. 

For example, say the company you work for has a program where they will match 50% of your contributions up to 3% of your paycheck. If you contribute the full 3%, you'll receive an extra 1.5% from your employer. That's free money for your retirement!

Roth vs Traditional 

There are two types of both IRAs and 401(k) plans, Roth and Traditional. The basic difference is when you have to pay the taxes on the account.

With a traditional retirement account, you pay the taxes once you're retired or taking money out of the account. With a Roth account, you pay the taxes upfront when the money is put into the account. 


Roth accounts are especially valuable to young workers. You'll most likely climb into higher tax brackets as you get older. So, you'll owe more in taxes on the same amount of money later in life.


Notice that keeping cash under your mattress isn't on this list. Money that isn't invested or placed in a bank account earns no returns or interest. And, because of inflation it will likely lose value over time.

Make your hard-earned money work for you. Invest in an IRA or 401(k). At the least, deposit it into an interest-earning savings account. 

If you have questions about how to get started saving for your retirement, ask your employer's Human Resources personnel or talk to your local banker.

Peoples State Bank, Member FDIC

How to Survive a Job Loss

A disruption in work can happen at any time and without warning. A job loss could result from a company layoff or when an individual  becomes unable to work.

A job loss is not only emotionally devastating, but obviously affects your finances.

Here are a few tips for survival if you have suffered a job loss:

• Don’t panic. Your focus needs to be on productive solutions not dwelling on worst-case scenarios.
• You should be open to seeking new kinds of work but remember what your strengths are.
• Live within your means. You’ll need to watch expenses weekly, focusing on necessities like food and shelter.
• Don’t drop all fun, but find low-cost or free activities.

For those who have not suffered a job loss, plan now to get through such an occurrence. 

The rule of thumb is that you should have six months of your income set aside in savings.
At the least, have three months available. 

It's not easy, but here are a few steps you can take to reach the goal of having six months of savings:

• Pay yourself first by saving at least 10% of your total income every paycheck.
• Save a few dollars each day. Either reduce a daily expense (expensive coffee, going out for lunch, etc.) or put pocket change aside in a jar. Then, make sure what you're saving gets put in the bank, not just used elsewhere.
• Identify “needs” versus “wants”. Only buy the “wants” with your extra cash.
• Compare your actual spending against your budget every month and make adjustments as needed.
• Focus on eliminating your high-interest debt.
• Pay more than the monthly minimum on your credit card bills to reduce the balance you owe faster.

While a job loss can stressful and shocking, it doesn’t have to be overwhelming.

Peoples State Bank, Member FDIC

Give Your Retirement Savings Plan a Check-Up

You opened an IRA or 401k account shortly after joining the workforce. You've contributed regularly, a percentage of every paycheck going toward that nest egg… but you haven't touched it since. 

Saving for retirement is not a "set it and forget it" endeavor. It is a process that requires periodic re-evaluation and adjustments. 

Here are a few questions to consider when you stop to give your retirement savings plan a check-up.

How much am I saving?

Experts recommend saving 10% of your annual income towards retirement for the first decade of your career. After that, increase your contributions to 15% of your annual income. 

To calculate if you're on track, there are three general benchmarks: 

1) by age 35, you should have the equivalent of your annual income in savings
2) by age 45, aim to have three times your current annual salary saved up
3) in your final years in the workforce, you should have at least eight times your final salary in your nest egg

 

 

How much risk am I taking on?

Another danger of never adjusting your retirement plan is that you could end up losing a big chunk of it. 

Typically, the younger you are, the riskier the investments in your retirement portfolio. This is because the potential for higher returns outweighs the risk of losing money because you have enough time to make up any losses prior to retiring. 

As you get closer to exiting the workforce, that balance shifts. Talk with your plan administrator and reassess your risk tolerance every 10 years to ensure that you're not taking on more than is advisable for your situation.

 

 

 What will I owe Uncle Sam?

Finally, when evaluating the state of your retirement plan, be sure to factor in your current tax bracket as well as the bracket you expect to be in when you retire. 

If you're in a lower bracket now, make larger contributions to any Roth accounts you have, since with that type of account the tax is taken out as you pay in. 

With traditional retirement accounts, taxes are paid when you withdraw. Roth accounts are especially valuable to younger workers, as they are more likely to climb into higher tax brackets as they age, meaning they would owe more in taxes on the same amount of money later in life.

If you're still not sure where you are with your retirement savings, or want to learn how you can start saving more, talk to your banker or financial adviser about your options.

Peoples State Bank, Member FDIC

Teachable Money Moments for Kids

There is often debate among parents as to what their kids should or should not be expected to pay for. While the answers depend on the age of the child and are personal to each family, here are some factors to consider:

     

First, you will need a child that has their own source of income. Whether it is an allowance or income earned from a job, there needs to be a way for them to pay for items with their own money.

     

Secondly, a decision should be made as to what lesson is being taught. Some general lessons are:

•         How to divide money between saving and spending
•         Importance of setting a budget and how much things cost
•         The decision-making process for prioritizing expenses
•         Responsibility and care for purchased items

Each of these lessons plays a role in determining what children pay for with their own money.

Some examples of what children can pay or help pay for include:

Birthday presents for friends. If a child has been invited to their sixth birthday party in two months, this becomes expensive for the parents. It's a good opportunity to work with a child on setting an overall gift budget for the year, then deciding what to buy and how much to spend on each friend.

Clothes or entertainment. Parents will buy basic clothes and other necessities for their children. The question becomes should the child pay for brand name clothes, or the extra purse, or the extra entertainment out of a pre-set budget?

Lost items.  Maybe the parent paid for the original cell phone or hand-held electronic game, but should they pay to replace the item if it is lost due to carelessness?

     

College tuition.  Post-high school education is expensive and parents should consider whether they will require their children to work during college. This may be during school, summer only or simply weekends. It depends on each family’s personal situation. Some studies have shown that kids who keep a job through college graduate with better grades. 

Vacations. Some families encourage their kids to help contribute to a family vacation or outing. While the children won’t pay for a majority of the expense, this provides the opportunity to teach them the cost of this type of entertainment and share in the decision of how that money is spent while on vacation.

However a parent chooses to do it, allowing children to manage their own money and make financial choices will benefit them tremendously in the future and teach them critical life-long financial habits.

Peoples State Bank, Member FDIC

Planning Your Summer Vacation (On a Budget)

Summer vacation time is just around the corner. Planning ahead can keep your vacation from blowing your entire budget for the summer. 

Time it right

Picking the right time for your family vacation is difficult. There are several schedules to juggle, after all! When you're selecting the best dates, keep pricing in mind to save money. 

Hotel rates fluctuate with supply and demand, so it really pays to go against the flow. In many popular summer resort destinations, prices peak between July 4 and mid-August. 

Consequently, vacationing in June or late-August can translate into significant savings.  

Tourist attraction admission prices fluctuate in much the same way. If you're flying to your destination, keep in mind that it's typically less expensive to fly on Wednesdays than on Fridays.

Watch for freebies and coupons

Whether you're selecting a hotel/resort or setting up your itinerary, be on the lookout for cost-saving bonuses. Free continental breakfasts and cheap transportation to attractions or tourist destinations add up. 

Before you leave, look for coupons for activities and events near your destination. 

Planning your vacation around the savings - rather than trying to find ways to save on events or activities you've already committed to - will make keeping the budget in check easier.

Pack your own meals

Packing your own meals is one of the most effective ways to save money on a vacation. 

Eating out for every meal will cost hundreds of dollars each week. If you plan to stay at a hotel or resort that provides cooking space, simply plan to go grocery shopping on the day of your arrival; just have a meal plan prepared so you don't over-shop! 

If you want to avoid grocery shopping in a new location, you can pre-make freezable meals such as casseroles, soups and lasagna to bring along. 

If you don't have access to a kitchen where you are staying, you can get creative and still save on food. For example, if you are going to the beach or the park for the day, instead of buying lunch, pack a picnic in a cooler. Head to a grocery store or deli before you reach your destination and pick up the basics for sandwiches plus some fruit and other snacks.

Vacation locally

Finally, you can get the most bang for your vacation buck by avoiding travel altogether. If you plan sightseeing trips and activities that are within a few hours' drive of your home, your hotel costs disappear and you definitely save on gas.

Peoples State Bank, Member FDIC

 

Couples: Preparing Financially for the Unexpected

Most couples know that they need to discuss large financial decisions, such as buying a car, college planning and home renovations. However, much of the day to day financial maintenance is left to just one person. 

Would you know how to handle your finances if anything happened to your spouse? Here's a financial checklist of information everyone should have about their money:

Location of important documents - Wills, titles, deeds and other vital financial documents are usually stored in a safe or a safe deposit box. Be sure you know where it's located and how to access it. 

Keep in mind that in Wisconsin, it can take a court order to open a safe deposit box that is kept only in your spouse's name.

Monthly bills - Find out which bills are paid with which accounts and when they are due. 

If you use online accounts, be sure both partners have the usernames and passwords, or know where this information is stored. This will reduce the hassle and stress that comes from missing payments or accidentally overdrawing an account.

List of assets - Each partner should know their combined assets, including real estate, automobiles, personal income tax returns, life insurance policies and investment accounts or mutual funds. Having all of this information readily available will help you avoid being victimized by scammers claiming to have assets that belonged to your spouse that require paying a fee to transfer to you.

Up-to-date wills - This may sound like common sense, but both partners should know where to find the other's most current will. 

If you don't currently have a will, it's important to put one together. Even if your finances are simple, it's a good idea to hire an attorney to draw up the documents.

If the unthinkable does happen, there are a few things the surviving spouse should remember to stay in good financial standings. 

First, continue to pay debts, including mortgages and utility/phone bills in order to maintain a good credit rating. 

 

Second, don't immediately make permanent significant financial decisions like selling your home. Take time to think these decisions through thoroughly after you've practiced managing your individual finances for a while.

Take these steps now to give yourself peace of mind, knowing that your finances will be stable, no matter what happens.

Peoples State Bank, Member FDIC