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Planning for a Major Purchase > Saving Money: It's Possible, Even on a Tight Budget

Saving Money: It's Possible, Even on a Tight Budget

by Eric Laursen

Saving money the old-fashioned way is refreshingly simple: You bring your money to the bank, deposit it into your savings account and watch your balance grow.

The beauty of saving is that it doesn't take much, which means everyone has an opportunity to do it, even families on a very tight budget. Did you know, for instance, that by putting aside 50 cents a day you could net $15 a month and at least $180 a year? Or by saving $12.50 a week in an interestbearing account you'll have more than $600 by the end of the year?

Consider this: Bringing your lunch to work each day instead of buying it can save you $3 a day, $15 a week, $60 a month and $720 a year. Now, what can you do with $720? Multiply it by two, and you've just bought yourself a week in the sun, a down payment on a car or whatever else you're dreaming about. All you need is some willpower and a goal.

A great way to ensure that your savings grow steadily is to arrange to have money from your checking account automatically transferred each month into a savings account, a U.S. Savings Bond account or a mutual fund made up of different stocks. That way, you'll never be tempted to spend the money because you'll never lay hands on it. What is out of sight is out of mind -- until you really need it.

Keep Track of Your Spending

An important first step is to familiarize yourself with your own spending habits. Jean Dempster is a financial trainer with the Maine Centers for Women, Work and Community who counsels adults on managing their money. Her advice: Keep track of everything you spend by writing it down. Then set up a spending plan for each month. The idea is to spend your paycheck on paper before you actually receive it so you have a plan of action. It helps, she adds, to give yourself two to three months to figure out your spending patterns so you'll know how much money you can set aside.

Some people need a goal in order to save. Maybe you're interested in buying a new home or starting a family. Perhaps you want to set aside money to cover emergencies. Experts suggest keeping at least three months' worth of cash on hand to cover those unforeseen emergencies, including a sudden job loss, a health crisis or even an automobile repair.

The Consumer Federation of America (CFA), a national nonprofit advocacy and education group, counsels people who are saving for a one- to five-year goal to put money into savings accounts, certificates of deposit (CDs) or U.S. Savings Bonds. These options not only earn interest but also give investors the best guarantee that the amount they saved will be there when they need it.

Where to Keep Your Savings

The next step is to investigate which savings product will work best for you. CDs, bonds and savings accounts differ, and one might match your needs better than another. For example, you can withdraw your money from a savings account at any time without incurring a fee, but your interest rate will probably be slightly lower than with a CD or a U.S. Savings Bond.

If you are motivated to start saving and want free advice, there are programs to help you. KeyBank, for example, is an institutional supporter of Cleveland Saves, part of America Saves, a six-year-old CFA initiative to provide consumers with more opportunities to save and to raise awareness about the importance of saving. America Saves works through alliances of community groups and banks and now has campaigns in eight states, including Florida, Indiana, Kansas, Missouri, North Carolina, Ohio, Pennsylvania and Wisconsin. More campaigns are being planned in Alabama, Georgia, Kentucky, New York, Tennessee, Texas and Washington. The program pulls together community organizations to sponsor workshops on saving, organizes savings clubs where people exchange tips and receive counseling from financial experts, and arranges free, 30-minute phone consultations with registered financial planners.

"Financial education can help consumers learn how to create household budgets, initiate savings plans, manage debt and make strategic investments for their retirement or their children's educations," says Bruce Murphy, president of Community Development Banking at Key. "Programs like America Saves empower people to become smarter consumers, increasing both their purchasing power and their ability to build assets."

It Pays to Skip a Few Luxuries

The America Saves program has a simple message: Even people with modest incomes can save substantial amounts of money for the future. Stephen Brobeck, executive director of the CFA, notes that a household that saves $50 a month for 40 years can accumulate -- at a steady interest rate of 5% -- more than $75,000. Brobeck says keeping track of spending can help people find extra money to set aside.

Also, when people have a goal in mind, such as buying a new home, they find it easier to skip the little indulgences such as eating out, says Dempster.

Adapted from Today's Focus, Winter, 2004.

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