The Basics of Saving

Practical Tips For Those Who Have Trouble Saving Money

With budgets already tight, many people wonder where they can find the money to save. Many consumers are on the ropes financially. This situation is perhaps hardest for those who feel as though they’ve done everything right.

The 2008 National Foundation for Credit Counseling (NFCC) Financial Literacy Survey co-sponsored by MSN Money revealed that a majority of people do not have a sufficient emergency fund, defined as three to six months income saved. Further, more than one-third, or roughly 76 million adults, say they do not have any non-retirement savings. Although a majority is currently saving for their retirement, more than one-quarter are not.

The problem is that when money is tight, it’s very hard to think about saving, but it is critical that consumers find a way to build a rainy day fund, and then address the larger issue of saving three to six months income.

The Basics of Saving

Money-saving tips to get started with saving:

Track your expenses.

To find money available for savings, first determine where you are currently spending your money. You can’t know where you’re going until you know where you are. Tracking expenses will provide the answers. Write down every cent you spend. At the end of the month, take a look at where your hard-earned cash really goes. You just might be surprised.

Create a budget.

Budget is not a four-letter word. A well-designed spending plan considers all sources of income, living expenses, debt obligations and savings. Be sure to incorporate all three expense categories: fixed expenses (e.g., mortgage, auto loans and rent), variable expenses (e.g., credit cards, groceries, entertainment, clothes and gasoline) and periodic expenses (e.g., property taxes, home repair, and car maintenance). Whether it’s saving for retirement, education or a vacation, the old adage remains true: pay yourself first. You can’t spend money you don’t have, so set aside your allotted savings right off the top.

Customize your budget to fit your lifestyle.

When constructing your budget, be realistic when looking for opportunities to save money. People are more successful when they cut back, as opposed to cutting out. Don’t be too strict, or you won’t stick with your plan. Know, however, that small changes over time can indeed add up. For instance, instead of eating lunch out every day, brown bag it two days per week. Take a look at your cable package and cell phone plan to determine if you have the right fit for your lifestyle. Evaluate the necessity of having a land phone. Savings opportunities are available in each spending category.

Start small.

The point is to get started. Put 10 percent of take-home from each paycheck into an interest-bearing account. At the end of a year, you’ll have a little more than one month’s salary as your emergency money, and it’s likely that you’ll never miss the money from your paycheck.Have the designated amount automatically deposited into your savings account. You can’t spend what you don’t have, so remove temptation by deducting the money before you receive it.

Commit to leaving the money in the savings account.

Many people regularly deposit money into savings only to pull it right back out. Define what constitutes an emergency, and don’t touch the money unless it meets the definition. Also, don’t keep your money in a checking account, as that makes it too easy to access.

Set a goal.

Since you’re just getting started, make your initial goal very attainable. However, the simple act of setting a goal gives you something to shoot for. Once you reach that amount, see if you can dig a little deeper and keep going.

Examine all spending categories.

If you could carve $10 out of 15 different spending categories, you’d have $150 each month to go into your savings account. That means that in 12 months you’d have built up a cushion of $1800 which should see you through most short-term emergencies.

Include all family members.

A joint effort yields a greater result. You can make a game out of saving and have a prize for the person who saves the most each week. Or, set a family goal and reward everyone with a pizza party or another event that will serve as motivation to keep going.

Save for specific needs.

Once you have your emergency fund in place, you may want to begin saving for upcoming needs such as a car, house or debt reduction. Some people even have different accounts for each purpose so they can see how close they’re getting to obtaining the item.

Involve the entire family.

A joint effort yields a greater result. And, make it fun. See who can save the most each month, and have a special prize for them. Agree upon a savings goal that everyone can work toward (summer vacation, new car, etc.). Celebrate each success along the way. Before you know it, saving will be as much fun as spending.

Find the right savings vehicle(s) for you.

There are many ways to optimize your savings. Consider splitting money between accounts that are liquid (such as a money market account) versus those intended for more long-term savings (such as certificates of deposit). Explore liquid money market accounts online, as these accounts can offer higher interest rates. Consider using automatic deposit, transfer, payment and withdrawal of money whenever possible to keep money out of your hands and in a safe place. Know that sometimes easy access to saved money is needed for emergencies, so don’t put all of your savings into vehicles where you’d be penalized for withdrawal.

Pretend it never happened.

When you get a raise, birthday money, bonus or tax refund, quickly put this extra income toward your retirement plan or savings account. The longer the extra money is in your possession the easier it is to spend it. If you were anticipating using this extra money to buy something special, instead consider using the money to pay down credit card debt, give yourself a small treat, and deposit what’s left over into your rainy-day fund.

Take advantage of your employer’s retirement benefits.

Gone are the days when Americans could rely on traditional defined benefit plans. Saving for retirement now rests more with individual Americans than ever. Regardless of your age, it is important to take an aggressive approach to saving. Contact your human resources department (HR) and research money-saving options, whether it’s through a traditional defined benefit plan that pays a set dollar amount each year of retirement or a defined contribution plan such as a 401(k) plan that allows contributions to be made with before-tax dollars. Also, ask HR if the company matches a portion of your contributions or allows catch-up payments. Changing jobs? Take your money with you – roll it over into an IRA or the new employer’s plan.

Ask for help from a professional.

If you find yourself unable to save, know that certified credit counselors are experts at finding hidden money in budgets.