Most financial planners suggest the average working family should build and maintain a savings equal to three to six months income. For traveling nurses, I would recommend the latter amount.
While it is true that most traveling nurses are going to find work as long as we are willing to relocate, it is also true that the unexpected can easily appear and being away from home can prove costly.
What I prefer to do is build a savings net. A savings net is what I call more than one form of savings woven together to create a strong network of personal savings options.
This first of two parts is about the traveler using credit. I have included this first because any one interested in saving must first take control of their spending. The second part will be about weaving your own savings network.
Eliminate Credit Card Debt.
As you read on, you will see that my suggestions are not the standard stuff you've read before. I highly recommend you use credit and use it a lot, but to your advantage not the bank's.
Credit is leverage, it is either leverage for you, or to the banks benefit. When used wisely, leveraged credit can make an astounding change over time. So first be sure you are on the power end of the credit leverage by paying the full balance of your credit card every month.
If you unable to pay the full balance on all your credit cards by the end of the month, this will be your first goal.
Follow this simple system.
Pay as much as you can on the smallest card balance until it is paid off then apply that amount to the next smallest balance card and continue this until they are all paid off. Trust me, this system works and what is used by most credit help agencies.
Use Only One Card.
After all your cards are paid off, keep and use one. I suggest using a card with a good reward plan that pays out both travel miles and or gifts, mine even offers $100 gift cards than can be used for cash. By using only one card I am maximizing the number of points earned on the one card.
Many of these cards still have no annual fee and since the card is paid off every month, I am not concerned about the interest. Here is an address to compare cards; http://www.credit-cards-info.com
Some folks might argue that using store cards that offer limited time interest free months is a smart move. This may be true, but not so much for travelers. What would a traveler need to purchase that would be so expensive it would require several months to pay off?
Oh yeah, that fancy laptop you've had your eye on! Just remember, those offers are made to lure you into their credit trap by getting you used to monthly payments and the best way to limit your purchases and build self control is to pay off your card every month. No matter how much it hurts.
Use That One Card For Everything Possible.
I know, I know. I'm gonna get slammed for this one, but this is about credit for Travelers. Most advice you read tells you to cut up your cards and pay cash only. Good advice for someone at home near their local bank, shops and neighborhood; not convenient at all for travelers.
Every purchase I can make; groceries, meals, gas are applied to my card. I am even checking into making mortgage and utility payments at my legal residence through my credit card.
Here are the benefits since I have started this;
* Bonus points accumulate quickly by running most expenses through it.
* I don't actually debit my account but once a month for the purchases.
* I carry very little cash as most businesses accept Visa or Mastercard
* Because I pay the full amount every month there is no interest charge.
So what about when I need cash?
These times do occur from time to time, that is why I have an account that offers a debit card that can be used at any ATM machine without charge. At the machine, I simply check that I accept the charge but the bank account credits that amount back to me the next day.
Since there is no fee for using ATM machines, I can limit the cash I'm carrying to a small amount. A smart move while visiting unfamiliar places.
On the next post I will talk about the elements of a savings net.
Savings Net Part II; Weaving Your Net
If leverage is the tool of credit, then inflation is the tool of savings. You might wonder why I use the word tool. Because just like leverage, inflation can either work for or against you, though usually against.
Let me give examples.
Inflation can be when the increase of the cost of goods outpaces the increase of your savings and wages, this would be an example against you, and the most likely to happen. If you travel to some other countries however and their currency is inflated, your dollars have greater purchasing power and things such as rent, food, and the cost of living will seem ridiculously cheap.
With this in mind we need to maximize the return on our short tem savings to match or exceed the rate of inflation. This usually dificult because we also want to maintain a high degree of liquidity for our safety net as well.
Beat the Tax Man
Taxes are the number one drain on an employee's income, it is the price to pay for enjoying the benefits of this country. While taxes are inevitable there is one short term savings alternative that beats the Tax Man.
The tax free savings in your savings net is the HSA or Health Savings Account. I have written an earlier post on them so won't go into detail here except to say that one great distinction between this account and an IRA is that the money in the IRA can only be used after retirement, whereas the savings in the HSA can be used at any time for health care purchases.
Money Market Accounts
These accounts can be found at your bank and pay an interest as opposed to simple checking accounts. Rules frequently apply to them however, such as minimum balances or a limit to the number of checks that can be written. If you are use your credit card to pay bills and make purchases you will be writing fewer checks and this won't be a problem.
Many banks now have online access to Money Market Accounts with online bill paying making it easier to manage your money while earning interest on checking that wouldn't be available otherwise. Find a bank offering free ATM access to get fast cash when you need it without having to write checks.
CD's; Certificate Deposits
Keeping a large enough balance to maintain your Money Market makes sense but after that you can purchase CD's that offer greater interest yet are still easily available to build your three to six month safety net.
Here is how they work.
A CD is purchased for a set amount for a fixed time and in return the bank pays an agreed amount of interest. Here's an example; your bank may offer a $1,000 CD that pays 3.1% interest if you agree to a two year term. Your money is then unavailable to you for this amount of time and if you redeem the CD early you will be penalized with a fee.
So if you are penalized for redeeming the CD early how does it fit into a savings net?
Keep the amounts of the CD limited to an equal amount of your monthly expenses and build to purchasing one each month of the year. The CD's can be automatically renewed upon maturity and yet can be redeemed should you need it for that particular month.
"Are you crazy?" some might ask if they are unable to set aside a month's extra income per month. If that's the case, simply reduce the amount of the purchase. Suppose you can only put aside one week's worth of expenses.
Great! Start there and continue to cover the calender with monthly purchases until you have accomplished this goal. Once you have you will feel liberated!
You can get more information on CD's and compare rates at; www.bankrate.com
What about bonds?
There are numerous types of bonds and some which offer tax advantages. The easiest and simplest types are EE and I bonds which can be purchased from most bank tellers though for travelers I reccomend TreasuryDirect, so I will keep this post limited to them.
EE bonds purchased after May 2005 offer a fixed interest rate which is currently 1.40% till October of 2008 an I bond varies the interest to keep pace with infation. They can be purchased for various amounts from as little as $25 for the EE bond to as large as $5000. The minimum term of ownership for a both is one year and if redeemed before five years there is a an interest fee charged.
Here is are some pros on EE and I bonds.
http://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm
just copy this link and paste it in your adress bar.
Money Market Funds
Money market funds are offered by brokerages and mutual fund families
These funds invest in highly liquid, safe securities such as certificates of deposit, government securities, and commercial paper (i.e., short-term obligations issued by corporations).
These funds are very similar to the Money Market Accounts found at banks. Their advantages can be that they offer many if not all of the benefits of banks; ie, ATM cards, checks, online access, while also providing a higher interest rate.
The disadvantages is that they are not FDIC insured and while they make every effort to maintain a NAV (net asset value) of one share equals one dollar, they cannot guarantee this.
Weigh them as compared to your bank, making sure they allow direct deposit of your paycheck and strongly compare their interest rate to your bank's, otherwise why risk giving up the FDIC guaruntee?
Weaving Your Savings Net
By opening a money market account or fund with CD's and bonds as well as an HSA you can weave a strong savings net that will give quick access to your cash while maximizing earning potential. All of this can be done easily on your own with a minimum amount of time when done online.
What about all that other stuff?
I know I didn't talk about simple passbook savings and when there is talk of savings the conversation can easily turn to mutual funds, and IRA's. These are best left to professional financial managers and not someone like myself, however if you have suggestions regarding things you have learned over the road, please drop me a note and I would love to hear about it.
Let me give examples.
Inflation can be when the increase of the cost of goods outpaces the increase of your savings and wages, this would be an example against you, and the most likely to happen. If you travel to some other countries however and their currency is inflated, your dollars have greater purchasing power and things such as rent, food, and the cost of living will seem ridiculously cheap.
With this in mind we need to maximize the return on our short tem savings to match or exceed the rate of inflation. This usually dificult because we also want to maintain a high degree of liquidity for our safety net as well.
Beat the Tax Man
Taxes are the number one drain on an employee's income, it is the price to pay for enjoying the benefits of this country. While taxes are inevitable there is one short term savings alternative that beats the Tax Man.
The tax free savings in your savings net is the HSA or Health Savings Account. I have written an earlier post on them so won't go into detail here except to say that one great distinction between this account and an IRA is that the money in the IRA can only be used after retirement, whereas the savings in the HSA can be used at any time for health care purchases.
Money Market Accounts
These accounts can be found at your bank and pay an interest as opposed to simple checking accounts. Rules frequently apply to them however, such as minimum balances or a limit to the number of checks that can be written. If you are use your credit card to pay bills and make purchases you will be writing fewer checks and this won't be a problem.
Many banks now have online access to Money Market Accounts with online bill paying making it easier to manage your money while earning interest on checking that wouldn't be available otherwise. Find a bank offering free ATM access to get fast cash when you need it without having to write checks.
CD's; Certificate Deposits
Keeping a large enough balance to maintain your Money Market makes sense but after that you can purchase CD's that offer greater interest yet are still easily available to build your three to six month safety net.
Here is how they work.
A CD is purchased for a set amount for a fixed time and in return the bank pays an agreed amount of interest. Here's an example; your bank may offer a $1,000 CD that pays 3.1% interest if you agree to a two year term. Your money is then unavailable to you for this amount of time and if you redeem the CD early you will be penalized with a fee.
So if you are penalized for redeeming the CD early how does it fit into a savings net?
Keep the amounts of the CD limited to an equal amount of your monthly expenses and build to purchasing one each month of the year. The CD's can be automatically renewed upon maturity and yet can be redeemed should you need it for that particular month.
"Are you crazy?" some might ask if they are unable to set aside a month's extra income per month. If that's the case, simply reduce the amount of the purchase. Suppose you can only put aside one week's worth of expenses.
Great! Start there and continue to cover the calender with monthly purchases until you have accomplished this goal. Once you have you will feel liberated!
You can get more information on CD's and compare rates at; www.bankrate.com
What about bonds?
There are numerous types of bonds and some which offer tax advantages. The easiest and simplest types are EE and I bonds which can be purchased from most bank tellers though for travelers I reccomend TreasuryDirect, so I will keep this post limited to them.
EE bonds purchased after May 2005 offer a fixed interest rate which is currently 1.40% till October of 2008 an I bond varies the interest to keep pace with infation. They can be purchased for various amounts from as little as $25 for the EE bond to as large as $5000. The minimum term of ownership for a both is one year and if redeemed before five years there is a an interest fee charged.
Here is are some pros on EE and I bonds.
- The interest rate appears low but also figure in the tax advantage and the interest acrues monthly.
- They can be purchased for smaller amounts than CD's making it easier to get started saving.
- They are easily redeemed for cash.
- They are considered among the safest investments in the world.
http://www.treasurydirect.gov/indiv/products/prod_eebonds_glance.htm
just copy this link and paste it in your adress bar.
Money Market Funds
Money market funds are offered by brokerages and mutual fund families
These funds invest in highly liquid, safe securities such as certificates of deposit, government securities, and commercial paper (i.e., short-term obligations issued by corporations).
These funds are very similar to the Money Market Accounts found at banks. Their advantages can be that they offer many if not all of the benefits of banks; ie, ATM cards, checks, online access, while also providing a higher interest rate.
The disadvantages is that they are not FDIC insured and while they make every effort to maintain a NAV (net asset value) of one share equals one dollar, they cannot guarantee this.
Weigh them as compared to your bank, making sure they allow direct deposit of your paycheck and strongly compare their interest rate to your bank's, otherwise why risk giving up the FDIC guaruntee?
Weaving Your Savings Net
By opening a money market account or fund with CD's and bonds as well as an HSA you can weave a strong savings net that will give quick access to your cash while maximizing earning potential. All of this can be done easily on your own with a minimum amount of time when done online.
What about all that other stuff?
I know I didn't talk about simple passbook savings and when there is talk of savings the conversation can easily turn to mutual funds, and IRA's. These are best left to professional financial managers and not someone like myself, however if you have suggestions regarding things you have learned over the road, please drop me a note and I would love to hear about it.
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