Debunking 6 excuses for not saving

By PHIL MULKINS World Staff Writer - 9/30/2009


People who are always broke usually have excuses for not saving any of what they make. Bankrate.com examines the top six of these worthless excuses.

I don't make enough: PassionSaving.com, home of financial bloggist Rob Bennett — tulsaworld.com/PassionSaving — says one reason people don't think they have enough to save is that they don't know where their money is going or how much they're spending on junk.

Keep a log of what you spend, item per item, and once you find it's going for things you don't need, add it up and have that amount moved from checking into savings each payday before you can notice what's there. Start with 5 percent and work up to 10 percent of your check. When you get a raise, put half in savings.

I'll save later: No, you won't. The older you get, the harder bad habits are to break. People who put off saving and investing don't get the benefit of compounding interest over time, the greatest factor in wealth building. Little by little is how you accumulate more and more.

Using Bankrate.com's compound interest calculator (at tulsaworld.com/BankrateSavingCalculator) you will see "The Story of Farsighted 20 and Nearsighted 35." Farsighted put $1,000 in a mutual fund when he was 20, added $100 monthly to it as it compounded annually at 7 percent interest, and found he was worth $433,939 at age 67. Nearsighted lived it up until he turned 35 and began the same plan. When he turned 67 he was worth only $145,940.

I want it now: The purpose of having a healthy saving plan is not to deny yourself everything but retirement. Save for specific goals: emergencies, indulgences, vacations and retirement. The fun stuff keeps you sane, the emergency fund keeps you safe and the retirement fund keeps you glad your 20-year-old self didn't hang with Nearsighted 35.

Someone else will: Though this is more likely the excuse of a spouse waiting for the other to bring home the bacon, anyone can fall into the trap of putting the savings responsibility on someone else. Counting on an inheritance or hoping to enjoy the fruits of gambling or lottery winnings are also forms of this excuse.

In the end, you are responsible for your own financial future. Even if someone else does bear most of the financial responsibility at your house, you'd better have a say-so in how it's run, because nine in 10 of us will have to take care of our own money at some point.

My 401(k) is enough: It's important to save as much as possible for retirement, but if you don't have additional savings for emergencies and occasional luxuries you're going to end up going into debt. You might own your home, but unless you have liquid cash in an emergency savings fund, you might not be able to get a home equity line of credit to fix it or to repair the car.

Savings plans should include the retirement nest egg, emergencies and the evolving needs of life.

This purchase will pay for itself: One reason people give for not saving is believing the intangibles they're buying are "worth more than money over time" — like all that college tuition or exploring Mexico. Both teach us things, but we can't really turn that experience into everyday capital.

Your Harvard-educated son isn't really going to support you when you're old, and there are already enough tourist-written books on Mexico. Start saving!





How is your emergency fund?

Emergency fund: Bankrate.com says every adult needs one. Financial experts recommend we set aside three to six months' living expenses before addressing other saving goals. Bankrate tells us how to create one at tulsaworld.com/BANKemergencyfund .

Resolve to survive: This money should never be used for short-, medium- or long-term goals. It's there to deter raiding your 401(k) when you lose your job. As our ancestors were wont to say, "Never eat the seed corn."

How much: The emergency fund is there to keep your family from going into debt after a job loss. If both spouses are working and both jobs are "secure," you could decrease the amount you set aside. Families with two jobs in industries prone to layoffs should build a fund large enough to keep the household for one year. Use a budget worksheet at tulsaworld.com/BudgetWorksheet to see how much is needed.

Short-term goals: Once the emergency fund is filled, turn to other priorities such as your short-term and medium-term goals. Short-term goals are family vacations you want to take in two years or the car you want to buy next year. These savings should be liquid — easy to withdraw when you need them. Try to earn a little interest in a federally insured account where you can't lose any money. Liquidity might mean you're giving up the chance for high returns, but remember that this chunk of money won't require time to ride out a stock market plunge.

Medium-term goals: As your financial goals become pricier, time horizons push outward to the future — down payments on homes, kids' college educations, daughters' weddings come to mind — and you'll need to go beyond belt-tightening and set up mid-term saving goals. You'll need more discipline to stick with these long-duration goals, and you'll need to invest differently: 529 savings plans for tax-free saving for college tuition ( tulsaworld.com/OK529Plan ), investments in mutual funds and other plans with fees and costs.

Follow the money: Short-term and medium-term money can be had from best-rate CDs and money market accounts, but be sure to pick banks that are insured (each account up to $250,000 but expected gains are not insured). Check the safety of your bank, thrift or credit union with Bankrate's "Safe & Sound" at tulsaworld.com/BANKsafensound . Online banks offer the best rates because they don't have brick-and-mortar expenses. Find a list of seven best online banks at tulsaworld.com/Action070509 .





Tulsa World consumer writer Phil Mulkins wants to know which topics interest you most. Call 699-8888 or e-mail your interest to phil.mulkins@TulsaWorld.com or mail it to Tulsa World Consumer, PO Box 1770, Tulsa OK 74102-1770.




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