When it comes to emergency funds savings, I subscribe to the theory “out of sight, out of mind.” Saving money with one of the best online banks helps to protect me from myself, as a recovering spendthrift. Our emergency funds are safely stashed at online banks if I need them, but not too accessible in the event I declare not having a plasma screen the week before college football season kicks off an emergency.

Online savings banks were all the rage just a couple years ago. It wasn’t unusual to score a 4 or 5 percent interest rate on online savings accounts. Today, the “high-yield” from high-yield savings accounts has all but been obliterated. Still, there are a few good deals at the best online banks, if you no where to look.

If you are like me, and have only a modest amount to save, one of the following online banks might be your best bet. I’ve listed them in no particular order after the first one (ING DIRECT is still my personal favorite, despite their relatively low interest rate).

EverBank (2.25% intro, 1.51% APY for the first year). EverBank’s Yield Pledge Money Market Account offers the highest interest rate of the bunch. The 3-month introductory 2.25% APY is an even sweeter rate, but it only lasts those first few months. There are a couple limitations to consider. EverBank requires a minimum deposit of $1,500, and in any month where your balance drops below $5,000 you face an $8.95 fee. That shouldn’t be a problem with most fully-funded emergency funds, but it is worth noting.

ING DIRECT (1.30% APY).I’ve had an ING Orange Savings Account for over two years now, and have to say I am very pleased with the product. We currently have a number of accounts there for targeted savings goals. While higher interest rates can be found elsewhere, I value the ease-of-use from their online interface.
 

WT Direct (1.51% APY accounts + $10,000). WT Direct also offers a solid interest rate, but with more caveats than other banks. While they do not require a minimum deposit, or charge fees based on your balance, they do offer a lower tiered interest rate for accounts with less than $10,000 (1.66% APY vs. 0.15%APY). If you have over $10k in your emergency fund, WT Direct is a solid option.

Ally Bank (1.49% APY).The high-yield savings account at Ally Bank is a very attractive option, with no fees, no minimums, and no convoluted tiered rates based on your balance. Another nice feature is that they compound interest daily, rather than monthly or quarterly, as many other banks do. Ally Bank is also a leader in high-yield CDS, which provides yet another option for a portion of your emergency savings (check out the no-penalty CD to avoid paying fees to transfer money out in an emergency).

Again, the most important benefit of saving emergency fund money at an online bank is that is separated from your everyday accounts, limiting the opportunities to spend it away on non-emergencies. I still like the idea of keeping a local emergency fund of $1,000 or so tucked away at a local bank or credit union for smaller emergencies. This smaller, local emergency fund provides quick access without having to wait a couple days for online transfers.

*APY figures quoted are accurate as of 11/25/2009, but variable rates can change frequently

My grandmother was a prodigious coin saver. I remember one summer when I was about ten years old helping her roll dozens of rolls of coins. Sensing I was getting a little bored making my piles of fifty pennies, she took me back to her room where she had hidden shoe boxes of rolled coins under her bed.

She took the tops off those old shoe boxes and I remember peering into them and seeing roll after roll of quarters, nickels and dimes. She had whole boxes dedicated to pennies. There was easily a few hundred dollars in change under her bed.

The Coin Collector’s Christmas Club

“Nana, what are you saving all those coins for?” “For Christmas,” she replied. My grandmother didn’t work outside of the home after my grandfather retired from the Marines. Fortunately for her, my grandfather is a cash-only kind of guy, opting to spend cash over charging on credit cards (these were the days before debit cards were made popular).

He would come home after a trip to the store and empty his pockets on the top of his dresser. That’s when my grandmother swooped in and collected any loose change and was off to add them to her coin bank. She did leave a little pile of change my grandfather referred to as his “walking around money.” He always liked to keep a little change in his pocket.

After that summer of helping my grandmother roll coins I went with her to the bank where she cashed in over $300 in rolled coins. Part of the reason she took me along was to reinforce the habit of savings, but I really think she needed help carrying in those old shoe boxes!

Saving Coins in the 21st Century

Fast forward twenty-plus years. My kids now enjoy saving coins. Both of them have little electronic money jars that keep a running balance – something I’m still not sure about. While it is fun knowing you have $52.00 in change in your coin jar, just knowing that makes you want to cash it in for that $50 game you’ve been eying.

One of the things we struggle with now is finding a more efficient way to cash in that change. Some banks and credit unions have a change counting machine where you can dump in your change and make a deposit to your checking or savings account. Others require the change be rolled, and some even require you write your account number on each roll (have you seen the length of some bank account numbers these days?).

The very act of counting the change is time consuming, and most electronic sorting banks are expensive – the cheap ones never get the count right, or drop dimes in your penny column, etc. Of course, there is always those Coinstar machines. I admit I’ve carried along a jar of money or two to Kroger and dumped it in the Coinstar machine to put towards the grocery budget. Yes, I know it charges me an 8.9% fee, but considering how long it takes to count and roll the money, isn’t this worth it?

Coinstar does offer an option to redeem your change for an gift card or eCard (list of participating merchants) without adding the fee. But then you have to buy something online, pay for shipping and wait. 8.9% doesn’t seem so bad after all.

Are you a coin saver? Where do you keep your coins, and how do you cash them in?

John writes in with a question about parking medium to long-term savings for a car replacement fund.

Here’s my situation: my car is 7 years-old with only 60,000 miles on it. It’s in good condition and definitely dependable; I plan on using it for another 5-10 years (five being the least). I figure that after 7 years of saving I would have about $8,400 plus the trade in value  for my car  – we’ll say that’s $1,000 for a total of $9,400.

My question is what do to with those savings? I don’t want to just let them sit there in my savings account, although it does have a decent APY of 1.40%. Should I put a sizable chuck into a 5 year CD and then continue to ladder it in CDs of decreasing term lengths until I need  the money to buy my car? Or should I just put it in a money market account, or higher yield savings account?

I want to maximize the money earned on that fund with out totally sacrificing my ability to withdraw it should an emergency come up, or I need to buy a new car sooner. What would you recommend?

John also shared with me that he is nearly debt free and will begin this car replacement fund after building a small emergency fund. Normally, I would recommend investing money that is to be used greater than five years out in a mix of fairly conservative mutual funds, such as a broad index fund with a low-fee brokerage like Vanguard.

However, this case is a little different because John is dedicating these funds as a car replacement fund. As such, the need to use these funds could arise any time between now and the six or seven years he plans to save. My own experience with Murphy’s Law leads me to believe John’s car will die the exact moment there is a market downturn, causing John to pull out savings at precisely the wrong time.

Instead of dabbling in a risky market, I would suggest parking the savings in an online savings account or money market account, and possibly a CD. I’m hesitant to fully recommend a CD because John mentions the possibility of tapping the funds in an emergency. To do so, he’d have to pay a penalty for cashing out the CD before the term expires.

Sometimes we have to sacrifice a little earnings for peace of mind, and I think this is the case with John’s car replacement fund. I’ve taken the same approach with my own set of sinking funds and targeted savings accounts. For now, they are stashed away in an online savings account at ING Direct.

Funds I don’t plan to use for a number of years will soon be laddered in CDs to increase the rate of return slightly. I’m comfortable reserving market investments for long-term saving goals.

Do you have any additional advice for John? Where are you currently parking savings for large purchases?

Fortunately for savers, banks and brokerages have made it much easier to put savings on auto-pilot than it used to be. Before the days of online savings accounts and ACH transfers people actually had to sit down and write a check to savings, or deposit cash into their savings accounts. Sounds archaic, I know, but it did separate the disciplined savers from the free-spirited spenders.

Today we have a variety of ways to save for retirement, rainy days and big goals. But deciding just how much to save is the tough part. Financial gurus all have their own numbers – 15% for retirement, 10% of your overall income, half of your income – I could go on forever. However, deciding how much to save is a personal decision that looks more like a balancing act than a hard, fast rule. After all, there are many competing priorities for our money.

The 10% rule

One of the more established ideas is to simply save 10% of your income. If you earn $50,000 a year, under this plan you should be putting away about $5,000 a year into a variety of investments and cash savings accounts. 10% should not be enough to break your budget, but it doesn’t cause you to stretch very far either. I prefer to aim higher with my rate of savings, but how much higher?

Dave Says 15% For Retirement

Dave Ramsey, the popular radio and television talk show host, advocates putting aside 15% of your income towards retirement. Using our last example, that would be $7,500 a year on a $50,000 income, or $625 a month. Dropping $625 a month across your 401(k) and maybe a Roth IRA seems like a good idea, but it will be hard to pull off if you have an over-sized mortgage, credit card debt, or a couple car loans. That’s why Ramsey advises listeners to get out of debt and save a cash emergency fund first.

The 50% Plan

If I could go back in time and talk to my 20 year-old self, I would tell him to save 50% of his income from the first day on the job. For every year you save half your paycheck, and live on the other half, you buy one year of freedom from earning an income. Sure, saving half your income now seems ludicrous, but that’s because we’ve allocated our income to paying for our expensive possessions, like our house, our car and our hobbies. If we lived on half our income from the beginning, it would have forced us into a smaller home, a cheaper car and more frugal hobbies (and tastes).

What Percentage of My Income Is Going To Savings?

About 20%. That number should increase as we continue to pay off debt, but for now I’m content with an 80/20 split of paying off debt and slowly building our emergency fund. When the emergency fund is maxed, I’ll redirect the money going there to a Roth IRA. When that’s maxed I’ll begin investing in taxable investments and social lending at Lending Club to hopefully fund my early retirement. Somewhere in there I also have two kids’ college savings plans to fund. Like I said earlier, lots of competing priorities!

How about you? How much are you currently socking away in savings?

The following guest post is from Craig Ford of MoneyHelpforChristians.com.

The only good way to spend money before you earn it is to spend it on PAPER.

Spending it on paper first is especially important for UNRI (Unexpected Non-Reoccurring Income)

What type of income is considered UNRI?

• Gifts - Christmas, birthday, or any other occasions where someone gives you money
• One time earning opportunities – this might include an honorarium for a speaking engagement, a thank you gift for a service you offered someone, or getting paid to participate in some type of survey.
• Side Job – You’ve been working away at turning a hobby into a source of income.  Sometimes you make money, sometimes you don’t.  It certainly isn’t consistent enough income that you can depend on it or predict the amount of money it will provide.
• Inheritance
• Prize/bonus money – while I personally don’t gamble and rarely even participate in raffles, some people will get money this way.  You might even have signed up for something that rewards you with a cash bonus.
• Any other source that currently you do not know the amount, frequency, or likelihood of getting money.

My theory is if you don’t pre-spend UNRI on paper you will waste it when it comes!

Our spending can be categorized in one of two ways:  Reactionary or Proactively.

Reactionary Spending:

We get a check for helping someone and we say to ourselves, “Hmm.  I wonder what I should buy?”  On other occasions we might get a cash gift and we immediately start to wonder how we should spend the money.  People love to ask the question “What would you do if you won a million dollars?”  Most of us won’t really need to answer that question, but many of us will need to know what we would do if we got $100.

The problem with reactionary spending is that it tends to be spent on short-sighted, temporary desires.

Proactive Spending:

A better way to spend is proactively according to a predetermined game plan.  In other words, spend it on paper before you make it.

Here are five suggested places you could allocate some UNRI:

1. Giving

If you decide that you will give only when you have extra money, you will probably never have extra money.  Decide today to give a certain percentage of your next UNRI dollar.  Once you receive that dollar you don’t need to decide if you are going to give some or not.  That decision has already been made before your greed can emotionally influence you to keep more of the money.

2. Debt Reduction

A common complaint when it comes to paying off debt is that people feel as if they are not getting any traction.  They feel as though they are simply treading water without making any progress.  Putting your UNRI towards debt payment will both reduce your debt load and motivate you to become debt-free.

3. A Long Term Saving Goal

This might be saving for retirement, saving up for a new car purchase, or saving for a home down payment.  Because the money is UNRI it shouldn’t impact your normal budget so this gives you a great opportunity to contribute to some of your long term goals.

4.  Short Term Purchasing Goal

Perhaps you have been wanting to do an upgrade on your house.  Maybe the car needs a new air conditioner.  Perhaps you have been wanting to take a vacation for some time.  This unexpected income can help you purchase some of those items.

5. Fun

Some of this extra money can be used just for fun.  It’s not bad to blow some of your UNRI, but make sure you decide how much you want to blow.  Since the money is unexpected it is alright to enjoy it, but keep your passions in check by predetermining how much you are willing to use for fun.

Go ahead and decide today, how are you going to plan to spend your UNRI?

You don’t need any number, just percentages.  Grab a paper or open a Word document and write the words give, debt, long term savings goals, short term spending goal, and fun.  Now beside each word put a % amount.  The only rule is the numbers need to add up to 100%.  Below is an example (but not a suggestion).  You will need to customize these numbers according to your situation.  If you have consumer debt that should get your largest percentage by far.

Give: 15%

Debt: 20%

Long term savings goal: 25%

Short term purchasing goal: 25%

Fun: 15%

Now you have officially decided to be proactive with your spending.  Next time you get an unexpected check you know exactly where to put that money.

About the Author:  Relying on his ministry experience and background in Biblical Studies, Craig Ford writes daily personal finance articles from a Christian perspective.  You can visit his site at www.moneyhelpforchristians.com or you can sign up to receive free daily email updates.

Is it possible to save too much money, particularly when you are young? After all, aren’t these the years when you should be filling your time with life experiences that you will never have the opportunity to repeat? There’s college, and trips with friends and the freedom from an 8-5 grind that you’ll never get to experience again. However, your 20s are also an excellent time to lay a foundation for wealth building that can give you a great head-start on financial freedom.

I recently received an email from a concerned Frugal Dad reader we’ll call “Brian.” Here’s the relevant portion of his message to me:

I’m 22, employed, making “OK,” but not “great” money, live at home but have several monthly expenses beyond the standard cost of living. I’ve managed to save $26,000 over the last year and a half after paying off almost $6k in credit card debt. I’m currently in the process of attempting to save $750-1,000/month.

Being tight with my money in order to meet my savings goals sounds like sound advice on the surface, but im begining to question if all this attention to saving is worth the heache. I’ve spent the last hour going over my finances to try to justify the additional monthly cost of the new iPhone…and while I clearly “could” afford it, I’m finding my lust for saving money to be much stronger than my attraction to the iPhone.

So my question is. How can I enjoy these years of financial freedom guilt free while saving for my future?

Well Brian, you’ve certainly impressed me with your savings intensity. It’s hard for an old frugal dad like me to find fault with your plan, but because you took the time to put what you’re feeing into words, I suspect you are slightly resenting your financial plan.

When I was your age, I was on a fairly similar path. I married young (when I was 20), and instantly wanted to learn, and do, everyone “grown ups” did with their money. I began learning about Roth IRAs and 401(k)s and starting dabbling with single stock investing. I was a savings madman.

Sensing my over-exhuberance for all things finance, my grandfather wrote me a letter on my 20th birthday, and one line in particular really stood out. He told me to slow down, enjoy life, to stop and smell the roses. Life is meant to be enjoyed. It had a profound effect on me because I realized then that even smart things done to a point of obssessing over them didn’t make them any smarter. In fact, it hurt you in the long run.

So, while I salute your ability to pay down debts, and save $26,000 at such a young age, I would also advise you to live a little. If you want that iPhone, can afford to pay cash, have researched and thought long and hard about the purchase, and still decided you want it – then I say go for it! By allowing yourself a few rewards you will be less likely to grow resentful of your plan.

On the other hand, your penchant for saving money and living frugal may mean that you decide a new cell phone will do, or a cheaper version BlackBerry may meet your needs. Think more in terms of what the device will cost each month to operate rather than the initial cash outlay, because it is those monthly bills that will get you in the long-run.

One word of caution. It’s a slippery slope. Today’s iPhone might be a new entertainment system tomorrow, and then a new car, and then a bigger house, etc. You see where I’m headed. Continue to approach things from a frugal perspective, separating true needs from true wants, only occasionally allowing yourself some of those wants.

I fully expect you to be a millionaire one day because you have such a great foundation. Keep up the great work!

The following guest post if from Neal Frankle of WealthPilgrim.com.  You can read more about Neal’s inspiring story immediately following this post.

If you’re lucky enough to be a huge, multi-gazillion dollar company like AIG, you can afford to make a few tiny financial mistakes. Lose a few hundred billion here or there. No problem – the government will pick up the tab.

But if you’re a small fry like me, you have to use your own initiative.

Unlike the fat cats, we live with this simple equation; Income – Expenses = Security.

Right now, your ability to increase income might be limited but I can all but guarantee that you have opportunities galore to slash your expenses. And if your financial security is threatened, its time to take action.

There are a number of wonderful blog posts that will help you save money. Those dollars add up quickly and it’s critical that you implement as many of those tips as possible. As Benjamin Franklin once said, “Watch the pennies and the dollars take care of themselves.” While I love those tips, if you take the steps I’ve outlined below you may save lots of time and lots more money than you can imagine.

Don’t track your daily expenses at first

This may sound counter-intuitive but if you’re not already tracking your daily expenses, don’t start now. (If you do track your daily expenses…don’t stop)

Why shouldn’t you track your daily expenses first? Because if you haven’t been doing this religiously for several years, you’re probably like most people I know. They start tracking every expense for a few days or weeks but then they stop. I understand why that happens. It’s a pain in the neck to track every little expense. Let me share a much better approach.

Let the bank track your monthly spending for you

In fact, you don’t even have to ask to them to do it because they already have.

Let’s back up a bit.

At the end of the day, it really doesn’t matter if you spend your money on doughnuts or diapers. All that matters is that when you subtract total expenses from total income, the result is a positive number.

Your first goal is to determine what you spend on average every month. Lucky for you the bank sends you this information in your monthly checking account statement. It’s the number under “Total Withdrawals”. You want that one number. You don’t care about the details….at least not now.

Think about it. That “Total Withdrawals” number includes cash withdrawals, credit card payments….everything. It’s the total of what you spent last month.

(Just make sure you use one checking account to pay all your bills and you’ll have all the information at your fingertips. If you use more than one account to pay bills, you live off credit cards, or you earn and spend cash, the process is more complicated.)

That one number on your monthly checking account statement tells you what you spent.

Create a spreadsheet

Get out your checking account statements for each of the last 12 months. List the “Total Withdrawals” number on a spreadsheet. Then calculate a 12 month moving average to determine what you spend on average. The reason this is so important is that some months are more expensive than others. You want to calculate a 12 month average in order to really know what you spend. Update the spreadsheet every month and recalculate your 12 month average spending. The first time you do this exercise it will take you 45 minutes at most. From then on, it will take you 5 minutes each month to update the information. Is it worth it?

Trust me. This exercise is far more powerful than trying to track your every expense. Even if you do track your daily expenses, this is an important exercise. The results will shock you I promise…..in fact your average expenses are probably 25% higher than what you think you spend.

You know what? Let’s have some fun. Before you calculate your average monthly spending, jot down what you think you spend on average. Now, go ahead and do this exercise. Let me know what your results are. Do you spend 25% more on average than you thought? Told you.

When people list their every expense, they ingeniously find ways to leave certain expenses out. “Oh…you mean I have to add in the home mortgage?” “Oh, you want me to add in groceries?” “Property tax?” “The trip to New Jersey?”

It’s just too easy to fool yourself if you don’t calculate your average monthly spending using this method. Do this exercise and keep doing it until I tell you to stop – and I never will.

Have “The Conversation”

Once I did this exercise I showed the results to my wife. Because I’m the man and therefore always wrong, I came prepared with the facts. When we both examined the facts, there was no arguing or blaming. In fact, once she saw the numbers she became a savings zealot. We both looked for ways to cut. It became a mindset and believe it or not, it was kind of fun.

The absolute beauty of this approach is that its simple, quick, 100% accurate and there is no arguing against the facts. It’s formidable.

Include everyone in your family in this conversation.

Once you and your partner are on the same page, have the same conversation with the kids. Of course, depending on the age of your children, you will present the information differently. Just assure them that the family is fine. Explain what you are doing and why.

My wife and I explained to our kids that we were cutting expenses and the reasons for it. We explained that the family is safe and fine and that everything was going to be ok and that they should not worry. We found that the kids actually relaxed once we had the conversation. They had known something was off but they didn’t know what. As a result of hearing a straight explanation of what was going on, they realized that their worst fears were unfounded. I encourage you to have these conversations with your children too.

This will create a new focus at home. Rather than being resentful about all the items you can’t buy, you’ll be delighted about the money you’ll be saving. Have a monthly meeting with the entire family to discuss your progress.

It may not be enough

If after a few months you see that you need more fire power to slash expenses , now is the time to start tracking daily expenses. Use programs like YNAB, Quickbooks or Quicken. Why wait to do this daily tracking? Because the process I outlined above is the best way to put the spending/income equation in context. It gives everyone the big picture view of your situation and it helps you get everyone to buy-in to the solution. If you don’t have the big picture buy-in, it will be very tough to achieve your goal.

And this exercise is going to take you 5 minutes a month. It’s a very easy way to get into the habit of following your expenses. If you won’t even spend 5 minutes a month on this, what makes you think you’ll spend all the time to track each and every expense?

Be flexible

Sometimes a $5 coffee at Starbucks will save you thousands of therapy bills. Just because you’re cutting expenses doesn’t mean you have live poor. Find ways to really enjoy your life and if that means having a $5 coffee once in awhile or splurging for a dinner out, then do it. Life’s too short to live in deprivation. Just relax your rules moderately and mindfully.

These steps helped me save over $14,000 in the last 6 months alone. Do you think it would help you? Have you ever calculated your average monthly spending? What did you learn and how did it change your spending?

About the author: Neal Frankle found himself in a financially fragile situation at the age of 17. Both his parents passed away while he was still in high school, leaving behind a small insurance settlement. Neal sought out a financial advisor to help him invest his nest egg so that it would help put him through college. Instead, the advisor charted a self-serving course and was on the verge of burning through the money when Neal realized what was happened and fired him just in time to avoid losing everything.

The experience had a deep impact on Neal and formed in him a lifelong desire to help people learn to make smart financial decisions. Today, with more than twenty-five years of experience in the financial services industry, Neal is an author and avid blogger. Subscribe to his blog at www.wealthpilgrim.com.