One of the most powerful ways to increase your financial security and grow wealth over time is to develop a savings habit. Form that habit by “paying yourself first” and saving regularly.
“In other words, treat savings like an important ‘bill’ that has to be paid,” says LSU AgCenter family economist Dr. Jeanette Tucker.
The week of Feb. 24 to March 2 has been designated as America Saves Week and will be marked with events promoting savings for both children and adults.
“It is more important today than ever that Americans adopt this simple idea,” Tucker says, pointing out that the U.S. savings rate is the lowest since the Great Depression. In addition, household debt levels and foreclosure and bankruptcy filing rates are high while housing values have declined in many areas of the country.
All of these factors signal the need for saving. But what are some specific reasons why someone should put money away? The family economist recommends saving to purchase “big ticket” items, to pay for high-cost goals (a home, a college education, a car), to retire comfortably, to accumulate money to invest, to have security and peace of mind and to build an emergency fund.
“Let’s talk some more about the emergency fund,” Tucker says. “You may think you can’t afford to have one, but you really can’t afford to be without one. Why? Stuff happens! And most of the time, it costs money!”
By setting up an emergency fund, you protect yourself from the unknowns.
Without this reserve, you may be tempted, or forced, to go into debt – debt that may take you years to pay off and cost you much more in the long run.
How much savings is enough for an emergency fund? Most financial experts recommend having three to six months’ living expenses set aside. The amount will depend on your personal situation (job security, income level, needs). Some of this money should be kept in liquid accounts, such as a money market fund, while other funds could be tapped from a low-interest source such as a home equity loan.
Your emergency account should be easily accessible, but not too accessible. Financial institutions offer a variety of savings accounts, such as passbook savings, money market funds and short-term CDs, which work well for emergency savings.
How do you get started? The easiest way is to make your savings automatic.
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