The third step in the 12 step BreadCrumb process is to create a $1000.00 rainy-day fund. And the sixed step is to expand that rainy-day fund to six months+ of expenses. One of the many questions I get in regards to the rainy-day fund is where I should save this money. You could put it under your mattress, in a box and bury it in your yard, or in a coffee can in the refrigerator.
You need to be able to gain access to this money very fast, and not have it tied up in some investment that would take days, weeks or months to gain access to the funds. Of course the can in the refrigerator is the quickest and most ready available source of cash, but it is one of the first places thieves will look when robbing your home. If your rainy-day fund was equity in a home or property you would have to take an equity loan or sell the home to get your money and that would take way too much time. If you put your money in stocks, you would have to put in a sell order and then have the money transferred back into your bank account, this could take from a few days to more than a week (all business days).
Being able to access your money via an ATM card is very accessible and usually fast enough for most emergencies. And most bank savings accounts have debit cards attached to them so the money is very easy and fast to gain access to. Most people that do have a lump sum of money in savings, want to make some return on their money, and most savings accounts today are usually returning less than one percent, which really is like not getting interest.
You have to remember that we are not looking at building wealth at this stage of your financial recovery. We are looking at installing a small safety net to catch you when life’s little emergencies hit you (and they will, no one is immune). So liquidity is more important then returns in regards to the rainy-day fund. This will change when we get to the extended rainy-day fund, but for now let’s not worry about returns and worry about getting out of debt.
Here is where many people get into trouble when starting their financial recovery, and that is will power. Most people that are in financial trouble have very little will power, and most of the time that is why they ended up in the mess they are in. So if you have a tin can in the refrigerator with $1000 dollars in it, the temptation is always right there to go spend it. There is always that friend that got a great deal on the latest electronics, or a great vacation cruise. Most people with low will power will be very tempted and most of the time loose out to the temptation by telling themselves I will replace the money when I get back from the vacation. The same holds true if you have the money deposited in your local bank savings account that you have access to via your debt card. This money is just a little too easy to withdraw and spend.
I have found a great financial tool that gives us the best of all worlds to store our rainy-day funds. This tool is a company called Acorn.
What Is Acorns?
They are one of the first investment applications that lets you open an account via your smartphone, or in a web browser. Once you have an account you attach your bank accounts and other account that you use for daily spending to your Acorns account. Once you are setup you spend as you normally do, and Acorns rounds up every purchase to the next highest dollar amount and send the difference to your acorns account. For example if you spend $3.20 on your attached debt card, Acorns will pull $.80 out of your main attached banking account and put it in your Acorns investment account. Acorns calls this kind of saving “Round Ups”.
Why is Acorns great for the Rainy-Day fund?
As I was saying most people that are in financial trouble have very little will power when they first start. So Acorns is kind of a mindless way to create your rainy-day fund without having to think about it. When I started my Acorns account I deposited $50 to start my account, set a $25 per week auto investment, and turned roundups on for my debt card and my travel credit card (I travel a lot for work). Of course the first few weeks I was excited about it so I opened my Acorns smartphone app every day, and was shocked at how fast it was going up. After a few weeks the interest in Acorns subsided and I stopped looking as often. I had forgot about it and opened it a few months later and was very shocked to see over $500 in this account. And in less than a year I had over $1000 in this account. You can also make one time lump sum deposits, when you have extra cash in your main checking account.
Here are a few reasons why Acorns makes a great rainy-day fund.
- Very easy to setup on the smartphone or in a browser from your computer
- Out of site out of mind: Once it is setup it is on auto piolet and as you spend you save. If your savings are in a savings account at your bank and that account is attached to your debit card it is just way to easy to spend that money.
- Acorns has a much better rate of return than your average bank savings account. Part of the signup process with Acorns is to figure out how you want to invest your money. They ask you some questions about you and recommend a savings plan that best fits your situation. You can choose the savings portfolio they recommend or select between the five portfolios they offer. They give you the option of Conservative, Moderately Conservative, Moderate, Moderately Aggressive, and Aggressive. I chose Moderately Aggressive and have had a good rate of return so far of about 6%. Remember we are not trying to get rich we are trying to build a rainy-day safety net, but 6% is way better than what I would get at my bank.
- Getting your money back for an emergency is very easy, you go into your smartphone app, or on a web browser, login and instruct them to send you the amount you need. This will trigger a sale order, and it only takes about three business days to get the money back into your bank account.
- Although these roundups are the main feature of Acorns’ platform, users can also invest lump sums by hand or set up recurring deposits on a daily, weekly or monthly basis.
- Minimum investment: A $5 minimum gets people started no matter how little money they have to put away. Many online brokers require a minimum of $1,000 or more.
- Ease of use: Once you’ve downloaded the Acorns app, sign-up is a breeze. You’ll provide your personal information and answer a few short questions about your investment goals. You can link roundups to as many cards and accounts as you’d like, and turn automatic roundups on and off. If you forgo roundups, you can still select individual transactions that you’d like to round up.
- One important note: Roundup funds always come from a checking account, even if you’ve linked credit cards to Acorns. That means that if you spend $8.75 on a credit card, the 25 cents in roundup funds will be pulled from your checking account and deposited into your Acorns account. This is a key feature; if Acorns rounded up credit card transactions directly on the card, users who carry a credit card balance would end up charging their investments. And you can’t get out of debt by borrowing money.
How to Create a Acorns Account:
Signing up for an Acorns account is very simple, and their mobile apps and web page are very well laid out and easy to use.
- To Open An Acorns Account – Go to this address or click the button from an android, iphone or computer https://acorns.com/invite/MA6KPW
(Disclosure – This is an affiliate link and you will be giving $5 deposited free into your Acorns account as well as $5.00 will be deposited in the author of this blog Acorns account)
- On a smartphone download and install the Acorns app
- Fill in your email address and create a password
- Click Agree to their Program Agreement
- Link you bank account that will be your main account where funds will be drawn from every time your “Round Ups” reach $5.00, or you make additional deposits
- Enter your banks online ID and password
- Enter your Personal Information
- Choose a Security Question
- Answer the Investor Questions
- Enter questions to help Acorns pick the correct investing portfolio for you.
- Select your Initial Investment. The minimum is $5.00 to start, but you can put as much in as you want. Remember this money will be pulled from your main checking account attached to the Acorns account, so make sure you have that much in your account.
- And you’re finished.
- Now start spending as you normally do and Acorns will start watching your connected accounts and cards and investing money as part of the Round Up system
Drawbacks to Acorns:
At looking at many of the other reviews about Acorns on the web they all have similar drawbacks to the Acorns product. All of their drawback are very true concerns, and should be looked at if we are thinking about using Acorns as our only long terms savings. But in our case we will be using Acorns to store our rainy-day funds, and we will look at other ways of building wealth in my book BreadCrumbs to Financial Freedom.
Here are some of the drawbacks that others have highlighted.
- Account Options: Acorns only offers individual taxable accounts, and no retirement accounts. This is fine if you are looking to find a place to store some cash as your rainy-day fund, and make it as mindless and as easy as possible to save money. Without a doubt Acorns makes saving money very mindless and very easy, and is not as easy to get your money as a standard savings account would be. But easy enough to get the money within a few business day, if needed for an emergency.
- Taxable Accounts: Acorns accounts are taxable, which means your capital gains might incur taxes. We are only going to put $1000 in our Acorns account to start our rainy-day fund, so there will not be enough capital gains to really worry about at this point.
- Management Fee: Those who don’t qualify for free management such as student with .edu email addresses pay $1.00 per month on balances less than $5000 and .025% on balances of more than $5000. Many thank $1.00 a month is a high fee percentage wise. I feel this is a great place to store your rainy-day fund, to keep it just out of the reach of hands that have yet to develop will power. So $1.00 is not that big a deal is the scheme of things.
As you can see what most feel are drawbacks to Acorns service, are really of no concern to us with our usage being a rainy-day fund.
Long Story Short:
Acorns is a great tool for mindless investing, and helping people like us in financial recover store our rainy-day fund. The concept of rounding up and sweeping small amounts of money from your checking account and putting it in an investment account is a very brilliant way of building up our rainy-day fund and keeping it just out of reach, but there when we need it for emergencies.
I look forward to working with each and everyone one of you in the near future, and remember, each new day is another chance to change your life – you just have to find the right path.
- 12 Steps To Financial Freedom
- Bread Crumbs
- BreadCrumbs To Financial Freedom
- Build Wealth
- Building Wealth
- Debt Equals Pain
- Debt Free
- Eliminate Debt
- Financial Freedom
- Financial Independence
- Less Is More
- Love Life
- Paul Stryer
- Why Live In Debt
- Zero Cost Of Living
- Zero Drama
- Zero Responsibility
- Zero Stess
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