Grandma was right; saving is important

My grandparents used to tell us, “Always put something aside for a rainy day.”

It looks like a lot of people haven’t called their grandma and grandpa lately.

Personal savings rates in the U.S. have declined steadily for the past two decades, falling to minus 0.5 percent in 2005 – the lowest level since the Great Depression. There are many reasons why saving is important:

• You could lose your job. We’ve all witnessed the economic roller coaster in recent years. Most experts say you should have at least three to six months of income readily available for emergencies.
• We’re not getting any younger. This year, the Baby Boomers start turning 60. That means they’ll begin retiring soon (if they can afford to) and tapping into Social Security, which could become seriously under funded in the coming decades.
• Health is expensive. Modern medicine has accomplished miracles, but at great expense. In 2004, the most recent figures available, health care costs rose nearly 8 percent, almost three times the national inflation rate of 2.7 percent.

Add to that the high cost of energy, housing and food, and it’s not hard to see why saving money is difficult—and crucial. So, what can we do to get back in grandma’s good graces? Here are a few tips:

• Tax-free savings. Join your employer’s 401(k) retirement plan. The opportunity to save money tax-free until you retire is unbeatable. If you don’t have access to a 401(k) or similar plan, consider Individual Retirement Accounts (IRAs), which offer a similar advantage of lowering your taxes. Vanguard (www.vanguard.com) and Fidelity (www.fidelity.com) are two mutual fund companies that offer a wide variety of low-fee IRA options.
  

• Start saving for a rainy day. You never know when a financial disaster will strike, so play it safe. You have many options for easily accessible savings including savings or interest-bearing checking accounts, money market deposit accounts, and short-term certificates of deposit (CDs). Bankrate.com has a good list of current rates locally and nationwide.
  

• Make a budget and stick to it. If you need help making a budget, visit www.practicalmoneyskills.com, a free personal finance site sponsored by Visa Inc. On it you’ll find interactive tools to help you track expenses, set up a budget you can live with, calculate your retirement income needs, and more.
  

Determine your long-term goals and set a plan for getting there. Perhaps you want to buy a house or a new car, or to start saving for your children’s education. And don’t forget retirement: Today’s greatly enhanced life expectancies and the uncertain future of Social Security means you will need to finance a considerably longer retirement than previous generations did.

Start saving now. Even if you can only put aside a small amount at first, the sooner you start, the faster your savings will accumulate. For every five years you delay, you may need to double your monthly savings amount to achieve the same income at retirement. Make your grandparents happy: Start saving more today. When you reach their age, you’ll be glad you did.