Simple Strategies for Savings
Posted by Richard on December 19, 2012
Simple Strategies for Savings
The recession has turned us back into a nation of savers. But we’ve still got a ways to go. Get strategies on how to save.
One of the few positive aspects of the recent recession has been getting Americans to refocus on saving. With so many taking hits due to job losses, investment losses, and home losses, putting together a strategy for savings has become important. But we’ve still got a long way to go. In a recent survey, 71% of respondents said they were saving too little.1
So how can you save more? The steps below should help you put a plan in motion.
Step One: Set a Goal
How much should you save? It depends on a number of factors, including:
- How much debt you have.
- Your job security.
- Whether you have a spouse and children.
- How much you’re currently saving for retirement and your children’s education.
Before the recession, many experts recommended keeping three to six months of living expenses in reserve in case of emergencies. Now, many have changed that recommendation to six to twelve months. It may also make sense to keep a second fund for future purchases, such as a new car or the down payment on a home.
Step Two: Set a Savings Strategy
First, examine your monthly living expenses. Factor in mortgage or rent, utilities, food, clothing, insurance, and entertainment. Also include credit card and other loan payments as well as other regular savings goals, such as retirement and college. If you don’t have any income left over to set aside, consider areas where you could reduce your spending.
Be sure to set up an automatic contribution from your paycheck or checking account into the savings vehicle you choose. Keeping the money separate will reduce the chances of you tapping into the funds.
Step Three: Set an Investment Strategy
Emergency money should be deposited where you can readily access it, such as a bank or credit union savings account or a money market account.2 Try to avoid CDs as they can charge penalties for early withdrawals.3 To find the best interest rate, look at various institutions and consider online banks. For your “major purchases” account, you can have a bit more flexibility. Consider CDs, short-term Treasury bills, and bond mutual funds.4
1Source: Absolute Strategy Research, “Survey of U.S. Household Finances,” September 2012.
2An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.
3CDs are FDIC insured and offer a fixed rate of return if held to maturity.
4Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and are subject to availability and change in price. Investing in mutual funds involves risk, including loss of principal.
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