In response to one of my ING Direct reviews and a discussion on emergency funds James asked a question in the comments, “How close should they be?” That’s a great question, and one I have asked myself since turning to online banking. A few online banks offer ATM card access, and a couple even reimburse ATM fees for withdrawals. However, the ING Direct Orange Savings account offers no such features. Transfers are handled online and take two or three business days to show up in either account. This presents a dilemma - what if I need access to my emergency savings today?

Start Local and Expand Later

We have decided to save $1,000 locally in a bank savings account, and anything we save above that we transfer to ING. The interest on a bank savings account these days isn’t enough to buy my kid a pack of chewing gum, but I’m more concerned with accessibility. Keeping a portion of your emergency fund locally provides quick access to at least the first $1,000 of our emergency fund in the event of a real emergency. This would be enough to cover the initial costs for most repairs, out-of-pocket medical care, etc. The remaining emergency funds would show up a couple days later for larger emergencies that required more than this “local emergency fund” could cover.

Select a Comfortable Level for You and Yours

I mentioned that I am not overly concerned with the interest rate on this local emergency fund. However, I do want to maximize any interest income potential with the larger, online emergency fund, so it makes sense to limit our local emergency savings fund to a specific amount. This minimum amount should be decided on by you and your family, not based on a recommendation from someone else. Around $1,000 works well for our family, but it may or may not work for yours, and that is fine. In uncertain times it makes sense to save a little more. When your checking account has a healthy balance, perhaps you could save a little less. The point is to have something liquid, easily accessible, and local so you can avoid turning to credit cards in an emergency.

Couldn’t I Just Use an Emergency-Only Credit Card?

Sure, assuming you have the discipline to identify real emergencies, and pay off the bill using emergency fund savings when the bill arrives. I have fallen into the trap of using a credit card to finance an emergency with the self-promise to pay it off when I get the bill. The bill arrives, and I am reluctant to use such a large chunk of savings to pay if off in one payment, so I rationalize that I will pay it off over time since the credit card’s interest rate is low, or because I like having the safety net of cash in reserve. Now I am stuck with a revolving balance that with interest is causing that emergency to become more and more expensive with each billing cycle. The only way to get off the never-ending hamster wheel of debt is to stop using credit cards and loans to finance life events. Create a local emergency fund to catch the small stuff, and a larger, fully-funded emergency fund online to save for life’s curveballs.

The other day I read an excellent article that provides some ideas for things to do with a tax refund. I enjoyed the list because it was outside of the normal, “pay off debt, start an emergency fund” standard listing of things to do with the upcoming tax rebate checks. One item in particular really caught my eye - “add it to your sunny day fund.” What a refreshing concept. I think way back in the annals of personal finance journalism someone first wrote that we should all save for a “rainy day.” It is one of those timeless axioms that we hear repeated over and over from anyone identifying themselves as a financial expert. But what about saving for sunny days, too?

photo by: NZ Alex

Starting a “Sunny” Day Fund

If rainy day funds are for negative life experiences, it only makes sense that sunny day funds are for the good times. Maybe you save in a sunny day fund for some tickets to a place you have always wanted to visit, or for that cruise you have been promising to take your family on for years. Maybe it is something small, like saving up to take your kids to the zoo, or to take a pottery class. Whatever it is, the sunny day fund doesn’t have to be limited to just material items.

I’ve been reading The 4-Hour Workweek by Tim Ferriss and in it he advocates taking planned sabbaticals at regular intervals. A sabbatical basically involves walking away from your career for an extended period of time, usually six weeks to three months. At one time it was a growing perk, particularly in highly competitive industries with high burnout rates. The thought was that offering employees a chance to take a break made them less likely to take a permanent one.

It is hard to imagine taking an extended break from work on purpose! Most people who receive a pink slip desperately need to be re-employed because they typically have a stack of bills, and very little in savings. Imagine that same scenario if you had very few bills, and a large amount saved in a sunny day fund. No worries, right? You could live off the severance package, take an extended break to do some traveling, or whatever your heart desires, and take your time finding a new job. It is an exciting concept, but one that most people find unattainable because they continue to live paycheck to paycheck. If this is you, start thinking about ways to reduce your expenses and/or increase your income to fund a “sunny day” account.

So What’s in Our Sunny Day Fund?

I recently wrote about how much I was enjoying my new savings accounts at ING Direct. One of the best features is the ability to create “subaccounts” and give them a nickname. Our current list of subaccounts includes Emergency Fund, Christmas Shopping, Orthodontics, etc, all based on some upcoming expenses that we need to be saving towards. In addition to those accounts we also created a “Sunny Day Fund” where we are currently saving towards a vacation destination that we would like to take the kids next year. I think I’ll take Nickel’s advice, and use some of our upcoming economic stimulus payment to get a head start on the sunny day fund balance.

Ask the Readers: What kinds of things would be in your “sunny day” fund?

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I consider myself fairly content. All of my basic needs are met, and there are very few things that I really want. I am a recovering techno-gadget guy who around the turn of the century enjoyed acquiring the latest toys such as a Walkabout pager, a Palm Pilot, and a laptop computer for home and travel use.  The only one I even remotely used was the laptop, but even it eventually wound up on an eBay auction to pay for a couple semesters worth of textbooks.

Guitar Hero III and Wii Sports Finally Convinced Me

I remember when the Nintendo Wii first came out. It was billed as an interactive game complete with flying remotes and Wii Nunchucks, I’m still not sure what those are for. At the time I was happy with my plain old XBox game system and exactly one game, NCAA Football 2007. Besides, with a full time job, a part time job, and two kids I found little time to play much of anything. And so the Xbox sits, collecting dust and becoming more and more obsolete each day.

Image credit: clipeuh94

As the Wii grew in popularity so did those who said it could be the next “family entertainment” device. Yeah right, I thought. They will never get kids and parents (and even grandparents) all playing the same machine. I was wrong. Today the Nintendo Wii is the center-piece of many family’s in-home entertainment. I have heard friends mention participating in Wii family bowling tournaments, burning calories punching some air with Wii boxing gloves and now you can even pluck away at a guitar playing Guitar Hero III. Nintendo Wii’s latest product offering is Wii Fit, which features a balance board and several body measuring metrics used to track your weight, BMI, etc. Playing Wii Fit games burns calories and helps to lower those statistics. Does this thing wash our cars, too?

Paralysis by Analysis

Over the next several months I read product reviews, customer ratings and played demo models of the Wii in Sam’s Club a few times (OK, more than a few times). After resisting the marketing hype for months I must now confess I am generally smitten with the Nintendo Wii, and I think our kids would have a great time with it. Perhaps we could even work it into our frugal family fun nights. A reader told me her family has Wii game nights instead of going out for food and movies and her family’s entertainment budget has dropped significantly. After all, it only takes a few visits to restaurants and movie theaters to pay for a Wii.

So Why Wait?

Worldwide shortage of Nintendo Wii units notwithstanding, I just don’t believe in rushing out and buying anything on first impulse. My grandfather has always given the advice to walk away from stores, car lots, etc. and sleep on it. Trent advocates a ten-second rule. Well, I’ve been sleeping on it for several months now.

I don’t think that’s what he meant! However, I do believe it is important to delay major purchases like a game console because it takes some discipline to save up and pay cash. We decided to open a subaccount at ING Direct labeled “Nintendo Wii” and automatically transfer $20 a paycheck, plus any extra money we scrape up, until we have enough to purchase the Wii and Guitar Hero III game. Based on current prices that means we’ll need to save around $300. At that rate it will take four or five months to be in position to buy the Wii, but that is fine with us because during that time Nintendo will probably solve some of their supply issues, and when demand slows down a bit, or when Sony or Microsoft put out a new product, Wii prices will be reduced. Sometimes it pays to move slow.

The other day my annual dose of reality arrived in the mail - my social security statement, sent compliments of the Social Security Administration. In it I found the usual listing of annual wages dating back to my first pizza job at 16 years old. It is comforting to know that if I die my wife and kids will receive a “special one-time death benefit of $255.” Great, that ought to be just enough to pay off the singer at the funeral. Instead of doing the usual file-it-and-forget-it routine I decided to run through a little exercise I read about in Your Money or Your Life.

Not including the $1,300 per year I earned rolling out pizza dough, collecting golf balls, and assembling fast food sandwiches in college, I’ve earned $368,569 over the course of my professional working lifetime. That figure is alarmingly high when I consider how little I have to show for it. I now understand why this is such a sobering exercise. If I had managed to save just half of that figure (after taxes) I should have well over $150,000 socked away in mutual funds, stocks and cash reserves. Suffice it to say, I’m not even close.

What can I learn from this painful exercise? The reality that this much money has slipped through my fingers has me reaching for a bottle of Tums. My entire adult life I have been working and earning and working and earning, and I have basically managed to save none of it. I have this vision of someone trying to collect rain water while stranded on a deserted island. They set up an elaborate bucket system to catch runoff, only to discover after the rain has stopped their bucket has an enormous hole in the bottom. Time to get a new bucket - fortunately there are few more rain clouds left on the horizon.

Ten years from now I plan to be holding a bucket full of mutual funds, stocks, and cash. The patch for my bucket will come from a variety of sources. First, I am using this year to build my knowledge of personal finance by becoming a voracious reader on the subject. By eliminating time-wasting activities such as watching television, or playing video games, I have managed to free up more time for reading books. Second, I plan to continue writing here to express my opinions on the subject of frugal finances. The research, planning and writing I do here, as well as the interaction with my readers and other bloggers, keeps me motivated to stay on track, financially. Finally, I now have a firm grasp on my spending and no longer buy things on a whim. By walking away I have learned to say “no” to myself, something most people with financial problems have yet to learn.

Need a cash advance in a hurry? Why not try a payday loan and get the money
you need, today.

This morning I was crossing a well-traveled parking lot and while dodging oil spots, food wrappers, and heaven knows what else, something shiny caught my eye. It was a dime. Sweet - a $0.10 find! I bent down to grab my treasure and put it in my pocket. A lady returning to her car noticed my discovery, and asked, “A lucky penny?” I replied, “No, ten times luckier…it was a dime.” She remarked, “I don’t stop for anything less than a quarter!” We laughed and she went on our way. I’m not sure why that short exchange stuck in my head, but since I began sharing thoughts on personal finances I have become more aware of others frugality, or lack thereof. So I began to ask myself the question, how much free money would I stop to pick up?

The lucky dime I found this morning represented about a month’s worth of interest on a $100 savings in a passbook savings account. It doesn’t sound like much, but considering I earned the same amount in about three seconds it wasn’t a bad use of time.

The dime covered sales tax on my few grocery items. My purpose for running to the store was to pick up two cans of chili for hot dog topping, which I found on sale for $0.79 each. At our current sales tax rate for food, my lucky dime paid the sales tax portion of the purchase total.

So ask yourself, how much money would you stop to pick up in a parking lot? A penny? A nickel? A lucky dime? I guess a lot of it depends on your value system. If you are the type who pumps quarters into video games, or dollar bills in lottery machines, chances are you will pass up any form of coined currency. However, if you are a fellow follower of a frugal lifestyle you recognize that money is your ally. Thanks to compounding interest, even seemingly insignificant amounts of money will work for you years after you rescue it from the asphault.

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