2008 June | Online Savings Blog

Savings Onion: Where Our Money Goes
06.04.08 | Money Management | 1 Comment | by junger

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Saving is easy, especially when you pay yourself first. With automatic transfers and recurring investments, you barely have to think about pocketing money for the future.

But where should your money go? Should it be for the short term or saved for retirement?

This is the question you need to answer.

Like Dave Ramsey's debt snowball, there are some layers to your savings; hence, the savings onion.

Our savings onion started with an emergency fund. It's the place to fund first since you never know when you will need it. We live with 3 months of expenses in our emergency fund, since we are also saving for a house in a liquid savings account.

If you're getting started, reach for a goal of $1,000 in your emergency fund. It won't help you for too long if you lose your job, but will cover any emergencies that pop up (and they do).

After we got 3 months of expenses in our emergency fund, we stopped contributing money. We've used it when our windshield cracked thanks to a rock in the road, but thankfully, that's it.

The next step of our savings onion is retirement accounts. At work, I began contributing 6% of my salary to a 401(k) — enough to get my employer match. When I got a raise, I automatically bumped it up to 10%. If I never see the money, I can't spend it!

To increase our retirement savings, we each opened up Roth IRAs. We started out only contributing $100 per month each, but have been able to increase our monthly savings and were able to fill up the accounts.

The Roth IRA contributions were automatic — no need to manually make the transfer. With that layer of savings going, we moved on to the next step: saving for a specific goal.

In our case, we're saving for a house. Since we wanted to be aggressive hitting this goal, we set up automatic transfers from our checking account to a new online savings account — for a year. Our first year of autopilot savings was a huge success — in addition to the money being put away automatically, we transferred every extra penny at the end of the month into the account.

Thanks to the "extra" savings at the end of each month, we were able to triple what our automatic deposits would have contributed during the normal year.

Our Savings Onion

Starting with the outside, here's what our saving onion looks like:

Specific Goal (a House)
Roth IRAs
401(k)
Emergency Fund

What does your saving onion look like?
Tax Rates Then and Now
06.03.08 | Taxes | 0 Comments | by Fred Siegmund

Savers usually think saving means saving and investing money. Some people save all sorts of things, which is why I happen to have the complete federal income tax forms and tax schedule for 1975, even though I am not the one who saved it.

I think 1975 taxes have relevance today because I saw an article in The Washington Post on May 15th entitled "Democrats War-Funding Bill Adds Surtax on Wealthy." Someone in Congress called it the "Patriots Premium."

The Patriots Premium would tax couples earning $1 million dollars or more at a new tax rate which is one half percent higher than the current rate. For single people, the half percent applied to income over $500,000.

Current tax rates call for couples earning over $349,000 to pay a top tax rate of 35 percent so the new tax rate must be 35.5 percent on wage and salary income. If we take a couple earning $1 million and we apply a new 35.5 percent rate to gross income of $1 million, they will pay $31,980 dollars more than they are liable for now.

The calculation uses two exemptions, the standard deduction and also assumes the couple earns all their income as wages and salaries and therefore without dividends taxed at lower rates.

In 1975, couples paid a 70 percent tax rate on every dollar of taxable earnings over $200,000. Today's top tax rate is just half of what it was in 1975.

Now we all know there has been lots of inflation since 1975 so that $1 million today is not the same as $1 million in 1975. Actually, the Bureau of Labor Statistics consumer price index (CPI-U_RS) shows a 342 percent increase since 1975.

If we adjust the $1 million today to compare with 1975, the result is $292,397.66. We could also say $292,397.66 of income in 1975 is the equivalent to $1 million of income in 2007.

Compare the 2007 income tax for a couple who earns $1 million with the income tax for a couple earning $292,397.66 in 1975. Today's couple above would pay $318,461.00 of taxes. That is 31.85 percent of $1 million gross income.

Apply the 1975 taxes to the 1975 equivalent of $292,397.66. The 1975 tax comes to $173,838.36. The amount is 59.3 percent of gross income. Apparently Congress and the country had much different ideas about the duties and tax responsibilities of the well-to-do in 1975.

The proposal to raise the rate from 35 to 35.5 percent is to fund educational benefits for returning Iraq veterans, but it has outspoken opposition and it is not expected to pass. The times they are a changing.

What about that, savers?

Fred Siegmund covers America's jobs as part of work doing labor market analysis and projections for a client base of recruiters, trainers and counselors. Visit him at www.americanjobmarket.blogspot.com
HSBC Direct Ups Online Savings Account to 3.50% APY, Temporarily
06.02.08 | Online Savings Accounts | 1 Comment | by junger

HSBC Direct has increased the APY of its online savings account to 3.50%, up from 3.05% (press release).

But here's the catch: it's only until August 15, 2008.

“We are committed to helping our customers get the most from their money, and we constantly look for ways we can reward them,” said Kevin Martin, executive vice president and head of HSBC Direct U.S. “Increasing our HSBC Direct Online Savings Account to 3.50% — when other savings rates have been falling — gives new and existing customers an even better reason to start saving more.”

Why HSBC would choose to make the rate change a temporary one (or announce it as a pre-planned temporary adjustment) I'm not quite sure. My best guess is that they are trying to get to the top of the APY lists for people looking to save their economic stimulus checks.

We currently use HSBC to hold our housing fund, and while the online interface can sometimes be a bit klunky and they take their time moving money around, their rates have always been competitive.

HSBC follows E-Trade as one of the only banks to increase the rates of their online savings accounts in the recent past.

» Next Entries

Savings Onion: Where Our Money Goes

Our Savings Onion

Tax Rates Then and Now

HSBC Direct Ups Online Savings Account to 3.50% APY, Temporarily

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