From savings rates to budget programs, WalletPop experts answer personal finance questions

With experts predicting that unemployment figures haven't bottomed out, it's no surprise that Americans continue to hold tight to their wallets. To help, WalletPop wants to answer your questions about security, investing and other financial matters. Here's this month's sample:

Question: What is the best savings interest rates right now? The INGdirect account is a good deal, everyone knows that. But if you have a MMA(money market account) linked to your checking it's easier to get your money in and out fast as you need it -- the downside is that the interest rate is lower and banks also have weird minimums sometimes for the better rates. Which banks are doing comparable rates to ingdirect and which ones have better deals as far as no minimum/low minimum?
-- Craig Pavia, 38, publisher, Long Island City
Answer from Gregory Karp, author of The 1-2-3 Money Plan and Living Rich by Spending Smart:

Great question. Everybody is looking to earn a little more on savings. But the fact is, interest rates are low right now. So, it's not like you'll find double-digit savings rates.

You can earn a little more than in a typical money market account by using certificates of deposit (CDs). But here are a few ideas to earn even more:
  • Online banks. As you mention, INGdirect.com is a good online savings bank that pays far more than average, as do EmigrantDirect.com and HSBCdirect.com. True, it can take a few days to make a money transfer from these online savings accounts. But how often do you need cash very quickly? A great site for most interest-rate topics is Bankrate.com, which offers interest-rate comparisons for saving and borrowing.
  • Rewards checking. A relatively new type of account is rewards checking, some of which are now paying more than 4%. The typical catches are that you have to use your debit card for 10 or 12 purchases a month (using a signature, not a PIN code), have a direct deposit into the account and receive an electronic statement, not a paper one. Lofty rates usually only apply to the first $25,000, though some banks will pay rewards rates on higher balances. How can they do that? Basically, banks earn high fees on debit-card transactions and share that with you. To compare rewards checking accounts, go to CheckingFinder.com and HighYieldCheckingDeals.com.
  • I-bonds. Through April of this year, Series I Savings Bonds are paying an annual rate of 3.36%. However, the rate adjusts every six months, based on inflation. So, your yield will be regularly changing. Learn more at SavingsBonds.gov.
  • Pay debt. Are you trying to squeeze out a couple of tenths of a percent more on savings when you could pay off high-interest debt? Especially if you have credit card debt or auto-loan debt and already have a cash emergency fund, paying debt might be the best use of excess cash.
One final thought: Don't knock yourself out continually trying to get the absolute best interest rates, especially if you have a relatively small stash. All interest rates are low. Earning 3% instead of 1.5% on $5,000 is a difference of $75 a year. That's not nothing, but not life-changing either.

Question: I'm trying to find a budgeting program that meets our needs. Because I am a freelancer, we have highly variable income and expenses from month to month, and our cash flow varies tremendously.

Most of the online budget software I can find only allow you to budget really one month at a time, and they suggest that you take all your monthly expenses and average them out (e.g. if you estimate that you're going to spend $120 in December, start saving $10 a month in January.)
While I aspire to saving enough money up that we can ideally live that way, the reality is that in some months, our immediate expenses wipe out the money we'd otherwise have saved for expenses that happen later. So it would be GREAT to find something that allowed us to look at a varying budget over time, and also that allowed us to project future cash flow so we knew how much we had to save from each month's surplus to avoid the tidal wave of next month's expenses.
Does Quicken Home & Business 2010 even do that? Do any programs? Mint, Wesabe, and Yodlee unfortunately do not -- and it looks to me like You Need A Budget doesn't, either. Help!
-- Kristen, 37, fashion designer, Chicago
Answer from John Tracy, CPA, Ph.D., author of Accounting for Dummies:

I would set up an Excel spreadsheet template for my particular freelance business. If you don't know the Microsoft Excel program (you really don't have to know that much) you could ask a local CPA to do for you.
Off-the-shelf, pre-designed computer application programs for budgeting (and for accounting systems in general) require you to first to become acquainted with the terminology and "rules" of the program. Next, you must adapt or tailor-make the program to fit the particular needs of your situation. One size does not fit all; every business has unique aspects that don't fit seamlessly into the program.

Last, you will probably discover that the program does not have all the features needed or that some features are not flexible enough. All this takes time and money and may not result in a good fit.
This sounds like a straightforward cash-based budgeting and record keeping system. That's why I recommend designing an Excel spreadsheet template that has a set of columns for each month (budget and actual), and that has separate lines for each revenue source and each type of expense.

You don't necessarily have to enter each and every revenue and expense in the spreadsheet day by day. One useful practice is the traditional "shoebox" method. You put revenue and expense slips and receipts in a shoebox, sort them once a week or month, and enter totals in the spread sheet. It works.
The questioner should keep in mind that budgeting has two basic purposes -- planning and control. The spreadsheet approach certainly is helpful for planning, such as looking ahead to forecast cash flows month by month and know when cash squeezes will happen. Of course it's a good idea to compare predicted (forecast) revenue and expenses with actual results.

Leave your questions in the comment section below.

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