Saving & Investing
July Financial Fitness Challenge—Find More Money/ July 3rd, 2012
This month's column was supposed to be about how to save money and why it's so important. The more I thought about that the more I thought any reader, encouraged to save more money, likely would want to tell me to buzz off. Like you don't already know that saving is important, and probably believe you should do more of it. I hear you. I really do. What got me started on the "need to save" path in the first place was reading a couple of recent reports indicating, once again, that Americans in general are concerned about their level of saving.
We're not ready for setbacksThe Aflac Workforce Report concluded that a majority of consumers surveyed are not financially prepared for a medical emergency; 28% say they have less than $500 saved for medical expenses, and 51% indicate they have less than $1,000. Asked how they'd pay for out-of-pocket expenses from an unexpected illness, more than half (57%) of respondents say they would have to tap savings, 30% would use a credit card, and about one of five people (19%) would have to withdraw funds from their 401(k)s. Of those surveyed, 58% admit they have no financial plan to handle a large, unexpected cost, while only 8% say they're prepared. Supporting that survey is related feedback from a poll on the National Foundation for Credit Counseling (NFCC) website. Asked to describe the state of their personal financial situation, 80% of more than 1,400 respondents admit their finances are in need of a major overhaul.
"This statistic parallels the findings of the recent NFCC Financial Literacy Survey in which 80% of adults indicated they could benefit from additional advice and answers to everyday financial questions from a professional," says Gail Cunningham, NFCC spokesperson. "It is encouraging that people recognize how perilous their financial situation has become. Now they need to take action to resolve the problem and keep it from spiraling out of control."
Your savings cushion makes the difference between a soft landing and a hard fall.An interesting bright spot in the Aflac survey is that 51% say one of the major reasons for not setting money aside for emergencies is that they are trying to pay down debt. Paying down debt is a smart goal for consumers making headway against large credit card balances. But, if you've cut down your credit card debt but not built savings, you'll have no choice but to use your credit accounts again when you're facing an emergency. So it's a truly vicious cycle.
Find more moneyThe solution is to find more money. Here are a few ways you might do that—and whether you use the money to pay down debt, build up your savings, or do a bit of both is up to you: • Track spending—You can recover some money from your routine spending once you identify where that spending might be a little sloppy. Use an envelope to collect every receipt for several weeks. I like to look through my receipts now and then and mark every line item with a plus or minus sign—plus means the expense is OK, minus means "ixnay." It doesn't take long for patterns to show up—why am I spending $8 for a home decorating magazine at the grocery checkout if I'm serious about saving money? • Nab that 'third' paycheck twice a year—If you get a paycheck every other week, twice a year you'll get what amounts to an extra check. And it's typically a bit larger than your regular check because your employer doesn't have to take money out for your share of benefits and the like. That's bonus money you can divert to savings. • Deposit tax refunds—Yes, we generally discourage getting a refund when you could be putting that money to work all year long. But let's face it: This may be your best shot at pulling some money together to jumpstart your savings. Take advantage of it.
Recover some money from your routine spending by identifying where that spending might be a little sloppy.• Dodge fines and fees—This comes under the category of completely avoidable spending. A parking ticket, speeding fine, and an overdraft fee are all examples of spending you can skip by adapting your behavior. • Postpone spending—Put off spending money whenever you can, for as long as you can; sometimes you'll find you can avoid spending altogether. If your car is still running well enough, keep it just six months longer to postpone borrowing to replace it. Sock away the money you'd have spent on a car payment. You might choose to put the savings into the down payment for the new car, reducing the amount you have to borrow. • Shop at home—See what you can find in your freezer, pantry, closet, garage, or tool shed to make a meal, dress for work, or plant a perennial. Keep a list on the door of the refrigerator and freezer to track the contents; you'll throw away less food and have to spend less overall when you use what you already have. • Organize your stuff—This idea might sound odd until you recall all the times you've bought something you already own because you couldn't find it or didn't remember you had it. It's related to shopping at home; once you organize your freezer you'll know that you already have frozen blueberries and don't need to buy them to make that dessert for the potluck, for example. All these strategies, and others you may already be using, become habits that help you find money—and avoid losing money—every day. Over time, these habits help you build a savings cushion that makes life a lot easier. Your savings cushion makes the difference between a soft landing and a hard fall when unpredicted expenses turn up.
Financial Fitness ChallengeYour credit union money mentors bring you this website and other tools to help you make the most of your financial resources. The Financial Fitness Challenge continues to look at ways you can make better financial habits no matter what condition the economy is in. ST
Susan Tiffany, CCUFC