Financial Fitness Challenge April--Make Saving a Habit
Susan Tiffany, CCUFC
We open the April Challenge by drawing a picture of possibilities:
Imagine never having to worry about having enough money in checking to pay a big bill--say, for auto insurance--when it's due.
Think what it would be like to not know--or care--if this week is payday or not.
Imagine how wonderful it would be to take a vacation and only use your credit card for convenience, not to finance the trip.
Visualize being able to weather an unexpected setback--say, having to replace all four tires on your minivan--without using credit.
Picture your dream retirement and know you can have it, without worrying that you'll outlive your money.
These rosy scenarios are possible--in time--with a deliberate shift in habits. It requires you to get serious and systematic about saving. Doing so means that you, at long last, will build your rainy and sunny day funds. That's right--your savings are for happy events as well as unwelcome ones. You can meet your short-term, medium-term, and long-term financial goals.
If you have ready access to credit, via credit cards or a line of credit, why do you need savings? Think about it--your credit card balances likely are growing because you have no alternative but to use them to pay for the unexpected. How long can you keep that up? Do you believe you can get out of debt by borrowing? Didn't think so.
You maybe have heard the advice that you should have three to six months' take-home pay in savings as a cushion against job loss, serious illness, or other calamity. For many people, that number is so big it stuns them into not saving at all. Now hear this: Worry less about the amount and pay more attention to making saving a habit--and your savings balance will grow over time.
When you save some money, you may find you're reluctant to part with it.
According to Bill Hampel, senior vice president and research chief economist for the Credit Union National Association, Washington, D.C., as many as two-thirds of consumers live paycheck to paycheck. You may be one of them. In that case, you're asking, How am I supposed to save any money? If you've been with the Financial Fitness Challenge since the January kickoff, you know some of the answers:
Identify your spending leaks. If you missed the January Challenge task of tracking your spending, it will help you now to go back and perform that exercise.
Identify your goal or goals. Then, when you have a choice about spending money, ask yourself, Does this serve my goals--or make them harder to achieve?
Write your goals down. If it helps, write them on 3 x 5 cards or a post-it and place one over the next check on your check pad, wrap one around your credit cards, and another around your debit card. Re-read your goals before spending.
Picture it. Make those goals visible. Clip images of a new pickup truck, remodeled family room, fantasy vacation in Africa, your new career as owner of a computer troubleshooting shop--whatever reminds you of why you're saving--and post those images where you can see them.
Automate your savings. Use direct deposit and automatic transfers from checking to savings.
That last point is more powerful than you may realize. One study, released in early 2007, says those who use direct deposit increase their savings balances by 30%. NACHA, the electronic payments association, Herndon, Va., surveyed 1,505 people by telephone. The survey revealed that those using direct deposit save $390 a month, $90 more than those saving manually. At a 6% yield, those direct depositors could save an additional $22,867 in 10 years. It's not magic--it's automated convenience.
Get serious and systematic about your savings efforts to be successful.
The Consumer Federation of America (CFA), Washington, D.C., commissioned a national survey in February 2007 of 1,000 adults to explore attitudes about saving. CFA shared secrets of successful "emergency fund" savers during America Saves Week:
More than half (52%) say they "save automatically through regular transfer of funds from checking to emergency savings";
Close to a third (31%) say they "save automatically through direct payroll deposits into emergency savings";
Half (50%) deposit a portion of tax refunds; and
One-third (33%) deposit loose change periodically; and
One-quarter (25%) "pay down expensive debt and then deposit the equivalent of monthly debt payments into emergency savings."
The study noted that there was almost no difference among demographic groups--by income, education, gender, age, and ethnicity--in using these strategies.
It's a kick
Savers have a secret that nonsavers miss: It's a kick. Having money socked away, even if a small amount, immediately boosts your confidence that you can handle setbacks. Having a bit of money saved somehow makes saving easier--a little success whets your appetite for more. When you have no money in savings, you may tell yourself you can't succeed--and it becomes a self-fulfilling prophecy.
Those who use direct deposit increase their savings balances by 30%.
Something else happens when you save some money. You may find you're reluctant to part with it instead of eager to spend it. And that keeps the amount growing.
It frees you to have some money in savings--you approach financial challenges differently when you have something backing you up. You have more flexibility in your decision making.
Save or pay off debt?
The conventional advice is to pay off unsecured debt--credit cards--first. The reason is that debt costs you more in interest than you can earn on savings, so you're already ahead by paying it off.
I suggest a middle view. Yes, concentrate most on paying off debt, but work on your new habit and make progress saving, too, even if slowly. Otherwise, you know what happens--you hit a rough patch and have no choice but to use credit to pay for it. It bums you out. You think, why bother? I can't do it.
That's why we always say: Pay yourself first.
You can do this. Ask the pros at your credit union about your savings options. Set up direct deposit of your paycheck, and divert some of every paycheck to savings.
Notable dates
Two national events make the calendar this month. Credit Union Youth Week is April 20-26, 2008. It celebrates and fosters financial literacy for young people. Credit unions across the country will conduct special events and sponsor activities for youth during this week, but they serve them all year long. If you have children or grandchildren, remember to introduce them to your credit union's services.
Do you believe you can get out of debt by borrowing? Didn't think so.
And April 27-May 3, 2008, is Volunteer Week. Your credit union's volunteer board of directors and its paid professional staff have a common goal--to fulfill the credit union mission of people helping people.
ST
Susan Tiffany, CCUFC
[email protected]
P.S. Direct deposit works great if you're receiving Social Security or Supplemental Security Income, too. To sign up, check out the Go Direct campaign from the U.S. Treasury and the Federal Reserve Bank.
Published April 2, 2007, Reviewed February 18, 2008
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