For financial well-being, make savings a priority

May 04, 2007|by LYNN LITTLE

Waiting until the end of the month when you're short on cash to make a deposit in personal savings can shortchange your financial future.

Saving regularly is key to building financial security, yet the U.S. Department of Commerce has reported personal savings in 2006 at the lowest rate in 73 years, a negative 1 percent. The negative rate means people are using savings or borrowing more to spend more.

Saving regularly and working to put a lid on extra spending and manage your money successfully doesn't need to mean doing without a treat or special-occasion spending. Saving is the tool that can make possible special purchases and opportunities possible, including a newer, more dependable car or family vacation.

To ensure savings, make it automatic. Pay yourself first by making a savings deposit before you begin spending your paycheck.

Track income and spending to identify the places where the money is disappearing. Make a list of net income and weekly, biweekly or monthly expenses. Include debt load and periodic payments, such as semiannual car insurance or property tax payments.

Separate expenses into two categories:

· What are the must-haves? Housing, utilities, health insurance, food, transportation and clothing are examples.

· What are discretionary or "nice to have but unnecessary" expenses? Entertainment, eating out, an extra sweater or a car with all the extras typically fall in this category. Cover the essentials first. Don't go shopping unless you have a list of needed items. Stick to the list!

Resolve to reduce - and eliminate - debt by paying off the highest interest loans first, while also meeting the mandatory payments on lower-interest loans, to avoid high fees.

Set aside money for an emergency fund. While a minimum of one to six months' expenses is desirable, as little as $500 can be helpful for such unexpected expenses as an accident or injury that compromises the ability to work, dental bills, additional transportation or a plumbing emergency.

Pay in cash or with a check or debit card. A credit card with a balance available can give a false sense of spending power.

Allow each member of the household some discretionary money, including allowances for children.

It's better for a child to learn from spending mistakes with a small, weekly allowance than to wait until he or she is a teen or young adult and unable to weigh spending decisions.

Visit Maryland Cooperative Extension's Web site - www.extension.umd.edu/family.index - and click on general resources for financial publications that can help you work on your financial well-being.

Lynn Little is a family and consumer sciences educator with University of Maryland Cooperative Extension in Washington County.

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