10 Steps to Improve Your Savings

Saving money is like exercising. Done right, it adds muscle to your finances. Left undone, your financial health turns weak and vulnerable.

Your savings should fall into three categories--long-term savings, such as retirement, short-term savings for items like home repairs and car down payments, and emergency savings in case you lose your job or face a major unexpected expense.

Here are 10 steps for a savings workout:

1. Set financial goals and put them in writing. You're more likely to stick to a savings plan if you know where you're headed. Set short-term, mid-range and long-term goals. Figure out how much you need to save each month to meet those goals.

Boost Your Savings Rate

2. Track your expenses for a month, and fill the money holes. You may know how much you pay for utilities, mortgage and groceries, but you probably don't know where your pocket money is going. Write down everything you spend and see where you can cut back. Making your own coffee at home on weekdays instead of forking over $4 for lattes before work, for instance, can save more than $1,000 a year.

3. Create a written spending plan and stick to it. Without a plan it's easy for little impulse purchases to add up and sabotage your good intentions to save. Make sure, of course, that your income is sufficient to support your spending plan and your savings goals. If not, look for ways to cut back on expenses or increase your income.

Emergency Money Market or Savings Account

4. Set up an easily accessible savings account or money market account for emergency savings. The traditional rule of thumb is to have three to six months of living expenses saved in case you lose your job, but given what's been learned lately, many experts now advise boosting that fund to nine months or more for living expenses. Shop around to make sure you get the best savings rates.

5. Pay yourself first. Have money automatically deducted each month from your checking account to a savings account. You're less likely to spend the money if it's not readily available.

Get Best CD Rates

6. Invest in certificates of deposit for short-term savings goals. CDs provide a higher rate of interest than high-yield savings accounts and are available in term lengths varying from one month to several years. Find the best CD rates to maximize your savings, and make sure you understand all the features of the CD before you hand over your money

7. Put your raises and bonuses to work. Instead of spending the extra income, use it to boost contributions to your IRA or 401(k).

8. Shop for bargains. Compare prices on everything you buy and choose the option with the greatest value for the dollar.

Make Interest on Small Change

9. Round up to the nearest dollar. See if your bank has a program to round up to the nearest dollar purchases you make with your check card and divert that money into your savings account. If your bank doesn't have this program, you can do it yourself by paying only with bills and saving the coins. Pocket change adds up to big dollars over time.

10. Save at least part of your tax refund next year. It's a painless way to build up your savings and you'll get far more satisfaction from achieving your financial priorities than from anything you would purchase with the money.

Getting in shape (physically or financially) can't be done overnight, but it can be done. You will probably find that you get more satisfaction watching your savings grow than you would from impulse spending on items soon forgotten.

National Endowment for Financial Education • Save For Your Future • Jan 01, 2009 • SmartAboutMoney: http://www.smartaboutmoney.org/Home/TaketheFirstStep/SaveForYourFuture/tabid/403/Default.aspx
National Endowment for Financial Education • Four Ways to Shape Up Your Money • NEFE: http://www.nefe.org/LinkClick.aspx?fileticket=Jy+U1HU9FjA=&tabid=70&mid=511

Catching Up On Retirement Savings Before It's Too Late

Boosting Your Retirement Savings Rate: Playing Catch Up After Age 50

If you're over 50 and don't think you've saved enough for retirement you're not alone. Almost half of Americans 55 and older report total retirement savings and investments of under $50,000, according to the Employee Benefit Research Institute's 2009 Retirement Confidence Survey.

There's no need to panic, but the sooner you address the issue and craft a plan, the better off you'll be. Here are seven ways to improve your financial health for retirement:

1. Stretegic Investments: Keep On Contributing Having watched your 401(k) account drop with the volatile economy in the last year, it may be tempting to pare back or even stop contributions. Certainly you should pay attention to what's happening with your retirement accounts, but experts advise not to stop contributions due to short-term declines in the market. Investing while values are down can pay off; investment advisors call this technique dollar cost averaging. By buying when stocks are down, you get more for your money and can make price fluctuations work to your advantage. Remember you're not investing for the next year, but for the next ten to twenty years. Make sure also that you're contributing at least up to the amount your employer matches. Otherwise you're leaving money on the table.

2. Play Savings Catch-Up If you're 50 or older, government tax provisions let you put an extra $5,500 into a 401(k) this year. That's on top of the $16,500 you're already allowed to contribute. For a traditional IRA and Roth IRA, you can add another $1,000 on top of the $5,000 contribution limit, and for a SIMPLE IRA, you can throw in another $2,500 in addition to the $11,500 limit. The federal government created these catch-up provisions because of concern over Americans' lagging retirement savings. Be aware that not all employer plans allow catch-up contributions, so check with your employee benefits department.

3. Delay Retirement Working just a few more years past age 62 while continuing to save can significantly ratchet up your retirement income. The longer you work, the bigger your Social Security check and your nest egg will be.

4. Cut Expenses Keep track of your spending, and look for places to cut. Little things add up, and there are dozens of ways to trim your budget and provide extra money for savings. Borrow DVDs and books from the library instead of buying them, cut back on lattes, refinance your mortgage to a lower rate, and shop around for the best insurance rates. Try these and scour your budget for other ways to save.

5. Work Part-time A growing number of retirees are going back to work part-time, not only to earn more money but to stay engaged with life. A new study, in fact, found that people who continue doing some work in their field after they retire enjoy better physical and mental health than those who stopped working completely. The University of Maryland study tracked 12,000 workers ages 51 to 61 starting in 1992. People who scaled back their work, rather than stopping completely at retirement reported lower rates of major ailments like heart disease and depression.

6. Downsize If you own your home outright, consider moving to a smaller, less-expensive house and investing the difference between the sales price of your old home and the purchase price of your new place. Or look into a reverse mortgage to augment your income.

7. Get the Most From Your Investments Consult with a financial advisor to choose the best investment strategy and the right mix of stocks, bonds, and cash. Don't cheat yourself on short-term investments. Shop around for the best CD rates and best savings account rates.

You may not be able to catch up to where you'd be if you had started saving for retirement in your 20s, but rest assured you can do a lot now to prepare for a good life in the years ahead.


Walter Updegrave • Play catch-up with your retirement savings • Jun 02, 2009 • CNN • http://money.cnn.com/2009/06/01/pf/expert/retirement_catch_up.moneymag/index.htm

Employee Benefit Research Institute • Retirement Confidence Survey • Nov 03, 2009 • http://www.ebri.org/files/FS-04_RCS-09_Age.FINAL.pdf

Kiplinger's Personal Finance • Help for Retirement Savings from Uncle Sam • Oct 21, 2009 • http://www.kiplinger.comhttp://www.kiplinger.com/businessresource/forecast/archive/help-for-retirement-savings-from-uncle-sam.html

American Savings Education Council • It's Never Too Late to Save • http://www.choosetosave.org/brochures/pdf/nlatesav.pdf

Cameron Huddleston • Should you work during retirement? • MSN MoneyCentral: http://moneycentral.msn.com/content/RetirementandWills/P64201.asp

Amy Norton • Working After Retirement is Good For Your Health • Oct 22, 2009 • AARP: http://bulletin.aarp.org/yourmoney/work/articles/working_after_retirement_good_for_your_health.html

Lisa Scherzer • Match Game: How to Cope With a Suspended 401(k) • Jul 30, 2009 • Smartmoney: http://www.smartmoney.com/personal-finance/retirement/match-game-how-to-cope-with-a-suspended-401k/

How To Choose Between CDs Money Market Accounts and Savings Accounts

CD, Money Market, or Savings Account?

CDs, money market accounts, and savings accounts all play a role in a healthy savings strategy, whether you're looking toward retirement or stashing cash for a rainy day.

But each has its pros and cons and one may work better than another at a particular time, depending on your goals and situation. Consider the options carefully when you have some extra cash to invest and choose the savings vehicle that best meets your objectives.

Here are the pros and cons of each investment vehicle:

CDs: The Upside

Certificates of Deposits are debt instruments issued by banks. You agree to deposit money for a certain amount of time, and after the CD matures, you collect the original deposit plus the accrued interest. CDs are lower risk than stock market investments because they're insured along with your other bank deposits by the FDIC for up to $250,000 per person per financial institution. They offer higher interest rates than savings or money market accounts, which means a higher return on your investment. Shop around for the best CD rates, whether you want to put your cash away for one month or seven years. The longer the term, the higher the interest rate.

CDs: The Downside

CDs aren't the best savings vehicle if you think you might need access to your cash before the CD's maturity date. Some CDs don't allow early withdrawal, and some charge a penalty. CDs aren't completely without financial risk. Inflation could outpace a CD's interest earnings--a scenario more difficult to predict with longer term CDs. Make sure you read the fine print to understand when a CD matures and you understand the various special features of a CD. For instance, "one-year non-call" means the bank can't call the CD in the first year; it doesn't refer to the maturity date, which may be many years from now. And don't fall for phony CDs that offer unbelievable returns--if they seem too good to be true, they probably are.

Money Market Accounts: The Upside

Money market accounts are high-yield savings accounts. They provide more access to your cash than CDs, and they often carry a higher interest rate than regular savings accounts. Money market deposit accounts at banks are FDIC insured, not to be confused with money market mutual fund, which comprise a variety of short-term conservative debt investments and do not carry FDIC insurance.

Money Market Accounts: The Downside

Money market accounts offer lower interest rates than longer-term CDs, and although they provide greater access to your cash than CDs, there's a limit to the number of transactions you can make each month. Some money market accounts also require a hefty minimum deposit amount.

Savings Accounts: The Upside

Savings accounts let you deposit or withdraw cash whenever you need to, or transfer balances online to a checking account. They have low or no minimums to open an account.

Savings Accounts: The Downside

Regular savings accounts usually offer lower interest rates than money market accounts.

CDs, Money Market and Savings: Making the Right Choice

As you consider which savings vehicle to use, ask yourself these questions:

How much money do I have to invest?

Will I need to get access to the money?

When will I need to tap into my savings, and how often will I need to make transactions?

How much interest can I earn?

No matter which option you choose, shop around for the best interest rates on CDs, money market and savings accounts.


FDIC • Certificates of Deposit: Tips for Savers • Oct 04, 2008 • http://www.fdic.gov/http://www.fdic.gov/deposit/deposits/certificate/index.html

FDIC • Insured or Not Insured? • Oct 04, 2008 • http://www.fdic.gov/news/news/financial/2009/fil09022.htmlhttp://www.fdic.gov/consumers/consumer/information/fdiciorn.html

Joan Goldwater • What You Need to Know About CDs • Jun 01, 2009 • http://www.kiplinger.comhttp://www.kiplinger.com/magazine/archives/2009/06/what-you-need-to-know-about-cds.html

Walter Updegrave • A whopping .04% return on savings • Oct 16, 2009 • http://money.cnn.com/2009/04/02/pf/expert/high_yeilding_CDs.moneymag/index.htm?postversion=2009040305http://money.cnn.com/2009/10/15/pf/expert/low_savings_yield.moneymag/?postversion=2009101605


Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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