An Easy Strategy for Saving

Submitted by Larry Light on Thursday, September 6, 2012 - 9:00am
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After the Great Recession hit, far too many Americans found themselves without any savings to get through the hardships of unemployment. Don’t let this happen to you. Getting into some simple saving habits can really help you down the line.
 
Social Security and unemployment checks are a lifeline to many, but usually not enough to maintain a decent living standard. The rule of thumb for emergency savings is three to six month’s worth of living expenses.
 
In light of the economic slump and the sheer number of long-term unemployed workers, most advisors tell clients to save even more, at least six to 12 months of expenses, says Amy Jo Lauber, president of Lauber Financial Planning in Buffalo, N.Y.
 
One way to do this, she suggests, is to set up an automatic deduction program your employer, or through your bank. “You can set up a program that transfers a certain amount from your checking account to your savings,” she says. “Once established, you can change it, but you probably won’t.”
 
We are all busy. It’s easier to keep things as they are. Also, Lauber says, once you learn to plan your finances around the remainder of your paycheck not transferred into savings, you won’t miss the money you saved. You can also start an automatic increase if you get a raise.
 
This simple strategy is also helpful when saving toward any goal, such as retirement, Lauber notes. With a 401(k) or similar program, you can automatically put money away, sometimes with an employer matching contribution. The government uses this system by withholding taxes. It takes taxes from your paycheck, and you live on the remainder. If you pay into your retirement fund automatically, you can save without feeling that pinch of dread when you pay monthly bills.
 
Make a resolution. Write down how much you want to save every month. It helps if you also tell someone about your goal. “These two steps greatly increase the likelihood that you will achieve your goal,” Lauber says. When you have a set goal and a partner to hold you to it, you stay more focused and are less likely to spend money on things that you don’t need. When on a dubious shopping spree, Lauber counsels that you ask yourself, “Is this purchase going to help me or hurt me?”
 
Americans often boast that they are number one in lots of things, but saving the money that we earn would probably be our worst event at the Olympics. American households save just 4.6% of their disposable incomes, far less than their less-profligate counterparts in Germany, Switzerland and Sweden. We are far better at spending money that we haven’t earned yet. The same lack of fiscal probity is evident on the national level. Our national debt is nearing $16 trillion, almost $51,000 per citizen.
 
If there is a silver lining to the black cloud of the Great Recession, it helped Americans to be more thrifty, put off gratification and think more about the long-term financial health of their family and community. People are forced to decline needless, unwise purchases because they don’t have the access to credit they had before. As a result, Americans are paring down debts and saving more money.
 
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The preceding article was based on content content originally published on the Financial Planning Association website, http://www.fpanet.org
 
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