7 steps to an emergency savings account

by Jim Sloan

The secret to saving: Pay yourself first

With many Americans struggling to pay the bills, cut down their credit card debt or get by on a smaller salary, it may seem foolish to advocate putting money into personal savings accounts. Isn't a savings account something you should think about when you're flush with cash?

Not in these uncertain times.

Saving accounts for emergencies

According to The Sacramento Bee newspaper, more than a third of us are putting less money into our savings accounts, online savings account or money market account now than we were a year ago. More than half of us are pessimistic about the economy turning around.

But perhaps the most surprising statistic: Only one in four Americans has saved enough in their savings accounts--be it a high-yield savings account or an online savings account--to cover their household living expenses for six months. These so-called rainy day funds or emergency accounts are critical during a time of high unemployment and economic insecurity.

7 steps to short-term security

That's why it's important for all of us to start building the best savings accounts we've ever had. Here are some tips:

  1. Start, even if it means starting small. Even setting aside $10 a week into your online savings account helps you in the long run. Make it a habit and stick to it.
  2. Focus on a goal and work to reach it. One goal would be to figure out what six months of living costs you--figure in grocery bills, rent or mortgage, insurance, utilities and everything else and come up with a figure. That's your goal. Work toward it.
  3. Set aside 10 percent of your monthly salary for your emergency savings accounts. In a year, you'll have more than enough for a few month's worth of living expenses.
  4. Treat saving like any other financial responsibility. It's a bill. Pay it. Make it the first bill you pay and then pay the remainder.
  5. Save automatically. When you set up direct deposit for your paycheck have a portion automatically diverted to your savings account. Most direct deposit forms allow you to do set up several transactions each time you get paid, so set up at least this one. Once you don't have to think about it, it takes care of itself.
  6. Find a "money buddy" who you can confide in and share success with. Your money buddy has to approve any transfers from your savings accounts, so give them online access to your accounts. Everyone works harder when they think someone is watching them.
  7. Log any windfalls. Windfalls are trees that have blown over and they save pioneers money and time because they didn't have to chop them down. Put all your cord-wood - including bonuses, gifts or over unexpected dividends.--into your emergency savings accounts.

That should get you started improving your savings rate. If you need additional strategies for starting the best savings accounts, consider freezing your credit cards in a Ziploc baggie filled with water--the time it takes to defrost it might be just the cooling off period you need to reconsider the expense--or paying for everything with cash. People who buy with cash tend to spend less than those charging their credit cards.

7 steps to a simpler retirement

by Jim Sloan

Many of us envision a retirement of relaxation--sleeping late, puttering around the house, play golf and frequent travel.

And retirement can be all of those things--provided we have put enough into our investments, retirement savings accounts and money market account to pay for them. Unfortunately, many would-be retirees with even the best savings accounts fail to factor in the many unexpected costs that may spring up.
Here are some ways to anticipate those surprise costs and adequately plan for them:

  1. Expect to live longer that you think you will. You may never had dreamed of living to 85 or 90, but if you've taken good care of yourself and you have a family history of longevity, you could wind up living a decade longer than you planned to live.
  2. Eliminate your debts while you're still working. Right now, your mortgage and consumer debt payments, regardless of the interest rates, probably consume a large portion of your income. Whittle those down or eliminate them altogether, and you'll find you may have enough in your savings accounts in retirement to join a golf club or take that trip to Costa Rica.
  3. Work later in life and keep working during retirement. Retiring at 55 or 60 sounds like fun, but you could be looking at funding 30 years of retirement. Every year you work past retirement age is one more year of building up your retirement savings accounts and one less year of drawing down those savings accounts. Even after retirement, an informal, low-stress job might be a great complement to all those hours of relaxation you have coming to you--and having a regular paycheck will put less strain on your investments.
  4. Learn to cut back now. Accustom yourself to a less extravagant lifestyle now so that it won't feel so strange after retirement. If you're in the habit of eating out three times a week, start learning some yummy recipes you can prepare at home. Find out what it's like to ride a bike to the store for milk and sundries so you can save money on gas.
  5. Plan for unexpected expenses. Most retirement advisors tell you to make sure you will need at least 70 percent of your current income in retirement for each year you are retired. Plan on 100 percent just to be safe. If you take conservative withdrawals of, say 3 to 4 percent each year, you should be OK and have enough money to cover emergencies, such as leaking roofs, or blown engines.
  6. Plan for higher health care costs. According to USNews.com, health care costs become the biggest drain on a retiree's investments. Expect Medicare to cover only 51 percent of your expenses, so have enough in your savings accounts to cover the rest or to pay for a supplement insurance policy to fill in the gaps.
  7. Don't forget you'll still be paying taxes. Your days as a taxpayer don't end when you retire; if you're withdrawing money from your 401(k) retirement savings account or IRA, you'll have to pay taxes on those withdrawals. Using a Roth 401(k) or Roth IRA allows you to prepay some of that tax, however.

Chase study shows we're not preparing well for retirement

by Jim Sloan

Yet another financial services company has come out with a report showing that consumers aren't giving them enough money via a 401(k) retirement savings account.

JPMorgan Chase, which provides retirement plan services in the U.S., added its name to the long list of retirement planners conducting surveys showing our savings rates are not high enough to ensure a comfortable retirement.

Savings accounts for emergencies

Companies like JPMorgan use the studies to scare the pants off baby boomers, who readily admit that they aren't saving enough for their retirements. In the case of the JPMorgan study, survey respondents said they are using their money to pay down debt, build up money market accounts or a high interest savings account for a rainy day, and pay their mortgages.

JPMorgan's retirement plan unit doesn't like the sound of that--not one bit. While the mortgage division might be happy to hear that some consumers are trying to stay out of foreclosure, Chase's retirement guys used the survey results to assert their contention that retirement saving is more important than any of that other stuff.

Here are some of the survey findings:

  • Two-thirds of us have no idea how much we should save for retirement, even though we're scared silly we won't save enough.
  • One in five of us have no idea how much money we'll have in our retirement savings accounts, investments and certificates of deposit when we stop working.
  • 80 percent of us are willing to put our investments and savings accounts into a retirement product that returns a guaranteed monthly income. That's the good news for JPMorgan, which happens to sell that kind of thing. The bad news is that 70 percent of us wouldn't want to pay the standard 4 percent commission.

Retirement savings accounts important

The Chase study took heart in hearing that nearly 90 percent of us think our 401(k) savings accounts are extremely or very important. We're taking responsibility for our futures, that's good. Unfortunately, we've chosen to pay down our debt instead of increasing our investments in 401(k)s, Chase noted, and that's bad. What's more, about three-quarters of us aren't reading all that investment material outfits like Chase send to us. That's really bad!

When asked how we would spend a $5,000 windfall, putting the money into a retirement savings account ranked fourth behind paying off credit cards, adding to the emergency fund and paying monthly bills.

Chase conducted the survey of more than 1,000 people in July 2010 and found that, at that time, only 17 percent said retirement was their first priority last year. That's down from 27 percent in 2009 and 44 percent in 2007.

Mixed messages

In many ways, the Chase survey contradicts a recent Gallup Poll which found that retirement savings are the top-rated concern Americans--higher than more immediate concerns such as paying for a child's college, making a minimum credit card payment or coming up with the money to pay monthly bills or a mortgage.

The discrepancy could be explained this way: We are worried about retirement savings accounts and investments, but the economy has made us powerless to do anything about it. A Wells Fargo poll found recently that U.S. workers are increasingly pessimistic about their investments and retirement savings accounts as energy prices, unemployment, groceries and federal budget deficits continue to climb. Many of us saw our 401(k) balances decimated during the recession, so instead we are focusing on things we can control--debt, spending and keeping a roof over our heads.

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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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