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After starting my investment challenge account about a month ago, I decided I needed to do a full blown audit of how we are spending our money. From various checking and savings accounts to investment accounts and emergency funds, I am analyzing where our money is being spent.
The hope is to identify areas we can cut back on to help save more money. Any obvious savings we find will then be funneled into our investment challenge account and put to work immediately investing in dividend stocks.
In many cases, we won’t be able to save on certain monthly expenses like our mortgage. Refinancing is just not an option for us, so we need to be selective on where we can save.
I have been able to identy a few areas where we can save $10, $15, even $20 a month.
All of these little buckets of savings should eventually flow downstream in the form of increased annual dividend income!
Not Just About Saving More
Not only have we started to identify a few places to save each month, but we also found idle money sitting in one account. The net result of finding $300 sitting inactive will increase our annualized dividend income by $13! Just another little step forward in building our dividend income portfolio.
Besides identifying places to save more and finding idle money, our financial audit has also uncovered a surprise that we were not expecting.
I recently reviewed our emergency fund and realized our money was not working as hard as it could be for us.
Emergency Fund Audit
A recent audit of my family’s emergency fund opened my eyes to some more lazy money. Years ago when my wife and I first setup our emergency fund, we decided to build a CD ladder to help the money grow.
We split our total emergency fund assets up into 5 equal parts and built a CD ladder, with the frequency set at 1 year. So we had a 5 yr, 4 yr, 3 yr, 2 yr, and 1 yr CD.
On average we were earning between 2.50% to 3.00% on our money.
Fast forward 3 years and we now have $30,000 sitting in a interest bearing account earning 0.75% from 3 expired CD’s (1 yr, 2 yr, and 3 yr). Certainly not the interest that we were use to earning but at least it is something.
The balance of each certificate was setup to automatically be deposited into a savings account on the expiration date, along with any interest earned. Instead of reinvesting this money back into the CD ladder, I let it sit in the savings account earning some interest.
15 Minutes of Work = $75 Increase in Annual Interest
For the past year, we have been earning 0.75% on a portion of (~$30,000) our expired CD’s. It wasn’t until my recent audit that I discovered we could easily be earning more.
Instead of letting $30,000 sit in an account earning 0.75%, I could split it up into 3 new CD’s that would earn 1.0%. It certainly doesn’t sound like a huge difference, but on that kind of money it is worth it to me.
Last Year Interest Earned – $30,000 x 0.75% = $225
Projected Interest Earned This Year – $30,000 x 1.00% = $300
Increase in Interest Income = +$75
As you can see above, the 15 minutes that it took me to setup 3 certificate of deposit accounts, increased my annual interest for this year by $75!
Note – In order to keep our money somewhat liquid, we setup a new CD ladder that is set to expire every 6 months. Each account will earn 1.0%.
Now $75 may not seem like a lot, but it is currently more annual income than 17 of the 23 stocks I own in the Money Sprout Index!
Some of you may be asking – Why don’t you just use the money to buy more dividend stocks?
I have certainly given this a lot of thought. After all, using my current yield on cost of 4.36%, I could potentially earn over $1,300 annually in dividends with this same money.
While that certainly is tempting, there is no guarantee of that return. Plus, since this is our emergency fund, we need to treat it as such. The 1.0% interest on the money will be guaranteed and accessible throughout the year.
The only thing I may look at in the future is determining if my wife and I have too much saved in our emergency fund. If that was the case, then I would be willing to move some of the funds over to buy dividend stocks. For now, we are planning to use the CD ladder again so we can sleep at night.
It wasn’t too many years ago that I watched our accounts like a hawk. Then life got busy and I got lazy, which led to having lazy money. I am now taking aggressive steps to getting our spending and savings under control. The end result of these actions will be more dollars that can go out and starting working for my family.
Isn’t cash flow great!
When was the last time you did an audit on your checking, savings, and brokerage accounts? Did you find any extra cash or surprises?