Trimming the Average Budget: Savings

This is part of an ongoing series about how to trim the budget of the average American. As this series focuses on such broad-based tips, some will work for you and some will not. You’re invited to mention in the comments the tips that you found to be the most useful for inclusion in a comprehensive budget trimming guide at the conclusion of this series.

Cash Contributions (optional retirement and cash savings) – $1,821

The average American family contributes $150 a month to their retirement plans and/or to their personal savings – and that’s a commendable thing. In fact, this is one part of a budget that should grow bigger while other parts grow smaller.

So, rather than focusing on “trimming” this section of the budget, I’ll instead mention strong techniques for maximizing the “bang for the buck” one can get from their personal savings and retirement dollars.

Start (and maintain) a cash emergency fund. Having some cash in a savings account at your bank can make an enormous difference when an actual crisis comes about. If your car breaks down and you have $1,000 saved up in cash, it’s not a worry – but if you don’t, you’re going to be paying some serious finance charges. Saving a bit now for emergencies actually saves you a ton of money later on.

Find a bank that doesn’t bleed your savings with fees. ATM fees, maintenance fees, access fees – banks love these fees. It’s one way banks make money. Of course, some banks put fewer fees on the backs of their customers – and if your bank is loading you down, you can find financial benefits from finding a better bank.

Open a Roth IRA. For most people (those earning under $100,000 a year, roughly), the Roth IRA is a great way to start saving for retirement, even if you don’t have much to save. It’s easy to set one up through Vanguard or Fidelity or your investment house of choice. They’ll just take a bit of money from your checking or savings account each month and invest it for you for your retirement. Then, when you’re 59 1/2, it’s all yours – tax free.

If you’re unsure of your retirement investments, choose a “target retirement” fund. If you’re trying to piece through complex and confusing investment choices in your retirement plan and can’t make heads or tails of it, a “target retirement” plan is usually the best choice for you. It automatically maximizes your risk when you’re young – keeping you heavy in stocks – and then scales back to more safe investments when you get closer to retirement. It does the leg work so you don’t have to.

Automate as much of your savings as possible. Automatic savings plans make it incredibly easy to start saving. Simply instruct your bank to take a small amount from your checking account and put it into your savings account (even if they’re at different banks) each week. You won’t miss $10, but at the end of the year, it’s turned into $520.

Set up savings plans today for your big goals tomorrow. Dreaming of taking your whole family to Disneyworld in a few summers? Start saving now. Set up a savings account at an online bank and instruct the bank to take $40 from your checking account a week. In two and a half years, you’ll have $5,000 for that trip. You won’t have to go into debt to do the things you want to do – and starting now means you only have to spend lunch money each week to get there.

Look for a bank that offers a strong interest rate on savings – and keep much of your savings there. You don’t have to keep your savings at the same bank as your checking account. You need good customer service and low fees for your checking account. For savings, the interest rate matters a lot more. Shop around and find an account that offers a great interest rate, then open a savings account there. Not only will your money earn more, but you’ll find it’s much easier to save if it’s not easily accessible at the ATM with the card in your pocket.

Lock up some of your savings in CDs. If you have quite a bit of savings – more than a couple months’ worth of living expenses – consider putting the extras into CDs. CDs – certificates of deposit – are basically like special savings accounts with your bank. In exchange for agreeing to not touch the money for a certain period of time (say, a year), the bank gives you a much better rate of return on your money. If you don’t need that cash right away, put some of that extra cash into CDs and earn a little more with it.

I want your help! In the comments, please let me know which of the tips you find most useful for trimming shelter costs. I’ll include the top choices in a comprehensive budget trimming guide at the conclusion of the series.

Continue reading Trimming the Average Budget: Savings …

From The Simple Dollar.

January 16, 2010 | Filed Under Frugal Living | Leave a Comment

The Simple Dollar Weekly Roundup: Next Project Edition

Now that my book is finished, I’ve decided to embark on another big time-consuming project, but this one is a little different.

I’m a big fan of online banks. I think they’re an incredibly powerful tool for helping you with your personal savings. For a long time, I’ve wanted to talk about a slew of online banks, just to review all of the different options out there.

There’s been a problem with this, though. I don’t like to talk about products that I don’t actually use myself. I won’t review a book unless I’ve read it and thought about it. I won’t review a financial tool unless I’ve used it extensively myself. And I won’t talk about a bank unless I’ve used it myself.

I use ING Direct as my primary bank. I talk about it often. But I don’t mention other banks for the reason above, and I want that to change. There is a huge diversity in online banks, offering different features, different interest rates, different offerings, and different tools for managing your money.

Here’s my solution. Over the next several months, I’m going to open accounts at a bevy of online banks. I’m going to try them out, see in detail what services they offer, transfer some money in out, test their customer service, and close the accounts (if I don’t intend to replace an account I’m already using).

Then, once a week, I’m going to post a detailed review of that bank in an effort to outline clearly what distinguishes it from other banks. What do they do differently? Who is this bank most appropriate for?

So I’m going to open this up to you a little bit. What would you like to see in a review of an online bank? What features really matter to you and would cause you to make the move to switch to a new bank?

While you chew on that, here are some interesting personal finance articles that might interest you.

“Natural Inclinations…Are Hardly Ever Altered or Overcome.” Over the last few days, I’ve been enormously inspired by this little quote. (@ the happiness project)

Do you do your most important work first? I used to have a very organized morning routine, where I would do most of my “routine” tasks before starting the day. What I found is that I got my “routine” tasks done, but most of the real meat of my work – the creative tasks – didn’t go nearly as well. (@ unclutterer)

How to Change Your Motor Oil Changing one’s own motor oil is a tremendous way to save money – when you pay someone else to do it, you’re essentially paying someone $20 so you can sit in a waiting room while some guy unscrews a nut, collects some oil in a bucket, screws the nut back in place, then dumps some clean oil in the top. Why not do that at home where you can do something worthwhile while the oil drains and save yourself $20? (@ art of manliness)

What To Do With A Financial Windfall This is a great step-by-step guide to handling a windfall. If you don’t have a plan, windfalls can actually be a large negative disruption in your life, as we talked about a bit last week. (@ moolanomy)

Results of a Week Without Spending Can you go an entire week without spending any money? As an experiment, this family attempted to have a week without any spending and managed to get by only spending $3. Fairly insightful stuff. (@ pt money)