Saving & Investing

Planting the Seeds and Saving for the Future

Near the middle of 2008, personal saving as a percentage of disposable personal income fell to 2.5 percent, according to the federal government. Worse, "savings from current income may be near zero or negative when outlays are financed by borrowing...by selling investments or other assets or by using savings from previous periods," according to a government report.

In other words, we're eating our seed corn. This is financial madness and it must stop.

Here are five tips that will help you plant a smart financial future and harvest the benefits later in life:

Start saving and investing now. Treat saving like a bill that must be paid - and pay yourself weekly or monthly. Have the amount automatically deducted from your checking account or paycheck and placed into a separate fund.
Even small amounts will begin to accumulate if you make regular contributions to savings and investment plans. You might even become a millionaire! See the next section for a primer on the miracle of compound interest.
If savings and checking interest rates are low, consider Certificates of Deposit (CDs), which carry higher interest rates and are insured up to $100,000 (in most circumstances), but require you to lock up your money for various periods. Also consider money market accounts - they pay relatively high interest rates, but are best suited to savings situations because your monthly check-writing privileges may be limited. Money market accounts generally do not carry federal insurance guarantees, but virtually all experts consider them safe.
Manage your bank accounts carefully. Overdraft protection can come in handy, but at a high cost in service fees. Also keep an eye on the monthly fees attached to your savings and checking accounts. You often can avoid these fees if you group your accounts under one bank's umbrella or have your salary deposited directly into your account.
Avoid credit card debt and be wary of "buy now - pay later" deals. Don't live off tomorrow's income - which may or may not materialize. Obviously, you also should be vigilant about expenses. Brown bag your lunches and eat more meals at home. Drive an economical car. Never pay full price for items at the mall - use the Internet to research potential purchases and look for sales and markdowns online and at the mall.

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