10 Steps to Improve Your Savings

Barbara Marquand | guest writer for GoTalkMoney

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

