I woke up to a notification that my online savings bank, Ally, increased their APY (Annual Percentage Yield) from 1.8% to 2.0%. Ya’ll, that’s good for a savings account.
One key action to achieving financial independence is an emergency fund. If you are anything like me, you have a back up credit card sitting in a drawer somewhere that’s dedicated solely to emergencies. This is an OK idea, but only on one condition.
What’s the condition? You plan to use the emergency credit card as a placeholder only for one billing cycle. If you don’t plan to pay off the balance, then you can be subject to a double cascade of issues. The first being interest payments on the money and a credit utilization change to your credit report. Double whammy!
What’s the solution? Open up an online savings account and build your emergency fund. The general formula for a fat emergency fund is six months of expenses.
For example, say you are a party of “2” and your combined monthly expenses are $2,500.00. A reliable emergency fund amount (in case your car blows up or you lose your job) is $15,000.00.
“What?,” you might declare, “$15,000.00 is a shit load of money.” Yes, it is. Agreed, (but doesn’t having $15,000.00 in savings sounds deliciously comfortable?) Start. Ally Bank has auto-transfer, so you can set that up and the cash magically moves into your savings account without you having to touch it.
Ally Bank has a good track record of APY increases and this year has increased their rates 10 times.
So, THANKS, ALLY for helping my money make money. (isn’t that why we are here?)