Confused about savings account

[Sugar Jones]

I think it's a good idea to have for "just in case" scenarios. Something you may have never thought of. What if one of your kids becomes sick and you have a to take leave of absence? I know the teacher's union is awesome, but what if it's long term? You need to be prepared for things like that.

I know as a tenured teacher your employment is rock solid, but what about your dh's? Yes you could manage on your salary, but wouldn't it be nice to have a cushion, so you wouldn't have to make drastic budget changes while waiting for him to find another job?

I do understand your idea of paying down your mortgage. I would LOVE to have that monkey off my back

In your situation I don't think you need a huge amount set aside, but you could pretty quickly save up a significant sum of money and just set it aside and forget about it. Then it's there if you need it

 

[Tiger926]

I think it's a good idea to have for "just in case" scenarios. Something you may have never thought of. What if one of your kids becomes sick and you have a to take leave of absence? I know the teacher's union is awesome, but what if it's long term? You need to be prepared for things like that.

I know as a tenured teacher your employment is rock solid, but what about your dh's? Yes you could manage on your salary, but wouldn't it be nice to have a cushion, so you wouldn't have to make drastic budget changes while waiting for him to find another job?

I do understand your idea of paying down your mortgage. I would LOVE to have that monkey off my back

In your situation I don't think you need a huge amount set aside, but you could pretty quickly save up a significant sum of money and just set it aside and forget about it. Then it's there if you need it

Yup, this is what we are going to do. So, hubby is setting up individual savings accounts today (weekly), plus extra money left in budget will go in those accounts as well. RESPs for kids' university and RSP (retirement) are covered in original monthly budget as well.

My goal has been to pay down the mortgage, and with our secured credit line (great staff rate of between 2-3% interest), we can pay as much extra as we wanted to. I loved to see the amount go down and down, but, that also meant no fixed savings accounts as once you put in, you are restricted by what you can take out. So, we had our floating savings amounts, and we would use those to pay for big purchases, like furniture, vacations, etc. Now, I have to switch my thinking to seeing our savings accounts grow, and the mortgage will not go down as fast as it has been.

Thanks, Tiger

 

[descovy]

If you're on the fence, just put $10k in a savings account... and leave it alone. Use the rest of your money to pay down the house, pay up the retirement, etc...

$10k will give you a cushion... just in case. And in the meantime you can focus on your other goals.

My dh and I have a similar mentality as you, like to pay down debt rather than carry it and make nothing in savings. BUT in a crisis, cash is king. It's nice to know there is a little something on the side just in case.

Just like you carry life insurance, health insurance ...
Consider $10k in a savings account your "rainy day" insurance.

Home equity can disappear. Use of credit cards can disappear. Ask the many, many folks who watched that happen... those with GOOD credit scores too.

Just put 10k in savings, forgettaboutit (till you NEED it) It won't lose money! And keep up with your other financial goals.

 

[Karenj2]

You've already mentioned the sturdiness of your jobs, so I won't comment on that, but I wanted to give you my story, so you can see how quickly things can change.

Pre-2004, DH and I were making close to $200k between the two of us (DH was making 3/4 of that). We had some savings, but not a whole lot. We were a lot like you in that we figured paying more on the house was better. In fact, we had just refinanced our mortgage so that it was a shorter loan, with a slightly higher payment. Then all hell broke loose within months of each other:
- DH had to pay a LARGE settlement due to a stupid error he made at work. He had to take money out of his 401k to pay it.
- I got laid off (along with hundreds of others), from my previous job. It was completely out of the blue - no one had any idea.
-DH ended up being diagnosed with depression (which he had before the settlement, but was trying to pretend everything was normal). He finally had to go onto long-term disability at 2/3 of his normal pay for over a year & a half. During that time I needed to be home to care for him, so I was unable to get a job.

Long story short, had we had a bigger savings account that was easily drawn from, we would have been able to ride out our issues without a problem. As it was, we had to borrow money from his brother, and had our house on the market. Luckily, DH got on the right meds, so I could find a job (which I did in 2006), then he was able to get a job as well. We've paid back DH's brother, and were able to take our house off the market. We learned our lesson - as soon as we could afford it, I started budgeting heavily, and we've now got a decent amount saved up in an emergency fund. (Plus, we've also got a vacation fund, a Christmas fund, and an account for our daughter.)

Anyway, if you feel that weird about not putting extra away towards the mortgage, why don't you split the amount, and put half in savings, and the other half towards your mortgage? You'll pay it down a bit slower, but you'll also still have an easily accessable amount of money to spend in an emergency.

 

[ccgirl]

I am not familiar with the Canadian finances/insurances at all.

The way I see it the a line of credit is just that; a line of credit. It is not cold hard cash. If you use it - you are just getting yourself in more debt and I don't know why anyone would do that when they can use cash.


I see you are getting savings accounts though so that is great. I would not tap in to that line of credit at all.

A lot of people here in the US did that and that led to a lot of the foreclosures. Say the house was worth 300K and they only owe 150K. That means 150K is left in equity. Oops...the house value dropped (they are not guaranteed to increase) and now the house is only worth 250K. Well...they used their 150K in equity and now owe 50K more than their house is worth. If they lose jobs and need to sell their house they will be at least 50K in the whole.

Long story short...never rely on credit if you can help it. Cash is best.

 

[bettymae1121]

What I would recomend is putting extra payments on the house "on pause" for a while, build up some savings, and then once your savings is at a point that you're happy with, start paying extra on the house again. In the US, general rule of thumb is to have 12 months expenses saved up, but being in Canada you may not need as much since you don't have to worry so much about health insurance, retirement, etc. like we do here.

Oh, LTC is Long Term Care insurance. This covers nursing home and other kinds of elder care costs. Health insurance in the US does not cover nursing homes, and the government (Medicare/Medicade) will only cover it once you spend down most of your assets first. I'm not sure how nursing home costs are covered in Canada, but if it's not covered by your government, it's something you may want to look into. It's cheaper the younger you get it, and if you wait too long (are too old or have a pre-existing condition) you may not be able to get it at all.

 

[CowboyCO]

First time back, as toddler is not feeling well as his asthma is acting up, so not much sleep last night.

Just a few responses:

Savings - I guess I'm starting to see the value of having cash savings. It's still confusing to me to have that money sitting around when it can go to pay down house, and knock years off of the mortgage, but you all seem to be saying that it's better to have this cash, and have more years on the mortgage? Maybe I've misunderstood...? We've paid down over $100,000 on our mortgage in 10 years - is this not good? We've had like floating savings account each month for the past couple of years - extra money this month was for vacation, extra bonus money in June paid for son's tuition in full (got 1 month free). I also don't want people to think that because we haven't had a fixed savings account, that we've been blowing the money, as that is not the case at all. We are behind though due to me taking 2 maternity leaves over the past several years, that cost us over $100,000 in my lost salary. We didn't do a good enough job of leaning out our budget, due to serious salary cuts, so we are almost out of that!

Hubby - I feel like I need to defend my husband. I didn't come on here because hubby doesn't know what he is doing. Goodness, no! I came on because we have been constantly re-evaluating the past few years with different scenarios: savings accounts for awhile, extra payments on house, etc. He has many scenarios to go over with me, but being a numbers guy, he understands things differently, so I wanted to get real people examples of how you all do it. Our friends and family all do different financial things, so I wanted to get some different ideas on here, so as to get more background info in order to understand hubby's scenarios. It's hard talking to him about specific things sometimes, and he does admit, that it's harder to deal with our own finances, than him dealing with this clients, because it is personal.

Monthly Budget - We re-did the budget last night, incorporating the new scenario (savings, RESP and RSP), and we still have over $2,000/month in which to pay for vacation (1x per year @ WDW for tix, transportation & food), donations, gifts and misc. This is over and above savings accounts. And our monthly budget includes everything from a $1.00/month magazine subscription to the mortgage, and everything else in between. Every little amount that comes out of our accounts is in our spreadsheet, except for the few things I mentioned above, as they fluctuate each and every year.

Salary - I am a Canadian teacher, and believe me, I don't take any of my job for granted at all, but it is virtually impossible for me to lose my job, so I've been basing things on hubby losing his job, but as mentioned, I could get ill (I would be mostly covered though), but one of our children could get ill, and so this is important to consider. Actual savings would help here. Hubby also is part of employee stock plan, and receives bonuses, so that is also extra money into our budget (a sizeable amount), but we don't count that in the budget as it fluctuates, or, it could go not happen one year.

Thanks to all for your help. I am a planner, but I overplan and overanalyze a lot of the time, and poor hubby, puts different scenarios together, and because he gets great staff perks, he has access to lots of different numbers, rates, etc. These confuse me a bit, as I'm a tad number challenged at times. I do find he has a different way of looking at numbers though, being that he does this all day, so that is where our issues have been, and that is why we are always re-evaluating our finances. But, as I'm learning, what works at one time, but not work at another time.

Thanks so very much to all, Tiger

To put it in your husbands terminology -- money to pay down the house is M2 money supply and savings is M1 money supply. M1 is money you can access quickly. M2 is money is takes longer to access (like the equity in you rhome or other holdings).

My DW is also a teacher and is mostly stable as far as employment (up until this economy -- you never know) My employment has always been there, but the wage has gone up and down (down recently). When the intitial downturn came in 2008, we didn't have ehough in savings to cover a longer term decrease in income and we have been draining it. Now, We're in the process of building it up and we will save more this time. I'll probably break it up into traditional savings, short term CDs, but it needs to be available.

Obviously you guys have done things very right and have your financial house in order. Having 306 months of income available will give you nearly complete financial freedom -- freedom to become your own bank and your own insurance company...

 

[Maggie'sMom]

Having 306 months of income available will give you nearly complete financial freedom -- freedom to become your own bank and your own insurance company...

You do mean 3 TO 6 months, not 306 months, right? Although 306 months would REALLY offer financial freedom.

 

[Carina]

If your mortgage has a intrest rate of 3% you are only making 3% on ay 'extra' money you are putting on it.

If you invest your money in something with a much higher intrest rate (mutual funds or many other options, your hubby will know dozens) your money would grow much faster.

Even if your goal was to pay off your house as quick as possible ( and that is your personal choice - so I am not going to make comment on that at all) It would make MUCH better sence, to invest any extra money in something with a much higher than 3% return, THEN when the money has grown signifigantly, make a huge lump payment with it on the house.

Let interst rates work for you!

 

[Sparkleshine]

It is great to pay down your mortgage but it is even better to do that AFTER you have 6 months in a savings account. I would suggest getting a CD and keeping some liquid. After you have 6 months of your monthly budget in cash keep paying down your mortgage off!

Another thing to think of....What do you plan on doing with your money once your house is paid off? If you were to have sent off your last house payment last month what would you be doing with all that money this month??

 

[Swimalie]

Honestly I don't plan on living in this house long enough for it to b worth it to pay down the mortgage. As soon as the house is worth what we paid for it in 2006 (we've lost about $150k in value right now) we're moving to a bigger house. So that money that we're not putting in to our house is going in to our savings account and earning us interest instead of going to the mortgage company where it won't do us any good.