Your Biggest Money Worries Solved ! Worry #2 I Save too Little

Worry 2: I Save Too Little
You and everyone else. The average American household saves a paltry 0.4 percent of its disposable income, down from 2.4 percent in 1999, according to the U.S. Department of Commerce. One culprit may be low interest rates. When you’re making very little money from your savings account, you have less incentive to save and more incentive to spend (and borrow).One way to get yourself to save more is to have a clear goal. Another is to have money automatically deducted from your paycheck or bank account.

Do Right Now:
Make your savings goals feel intensely real.
What do you want or need? A remodeled kitchen? A one-year sabbatical in Italy? To retire to a condo in Waikiki at the age of 55? Having appealing goals will make putting aside part of your paycheck palatable. “You can even try subliminally seducing yourself,” says author Jason Zweig. “Change your computer passwords to reminders like ‘gleamingkitchen’ and ‘retiretohawaii.’ The more often you type those phrases, the more likely you are to internalize the goals and to feel that the future is now.”

Open a 401(k) (or RRSP) retirement account, if you haven’t already (and your employer offers one). You’ve heard it a million times, but this really is the easiest and smartest way to save long-term. The money comes directly out of your paycheck, you don’t pay taxes on it until you retire, and employers often match part of your contribution. In addition, the contributions will reduce your overall taxable income. Don’t worry about making an investment selection right away. For now, just pick a safe cash equivalent, such as a money-market fund. If you don’t know how to start contributing to a 401(k), call your employer’s benefits department for help.

Start a savings fund for immediate needs, like your next vacation or that kitchen project. Ask your bank to move a specific amount each month (say, $100) from your checking account into a savings account. Or set up the transfer yourself at the bank’s website.

Next Steps:
Invest wisely. Move your retirement money into a target-date fund, which most large 401(k) plans offer. These funds automatically adjust the mix of stocks, bonds, and cash they hold over time to maximize your return and minimize your risk, and they’re perfect for people who want to invest wisely but don’t quite know how. To choose a target date, all you need to figure out is the year you’ll start withdrawing the money. For example, if you are 40 and want to retire when you’re 65, put your retirement savings into a target-date fund with the year 2033.If your 401(k) plan doesn’t offer a target-date fund, go to your plan provider’s website for information on how to pick the best mix for your portfolio. For more help, read Andrew Tobias’s terrific book The Only Investment Guide You’ll Ever Need (Harvest Books, $14, www.amazon.com).

Move your savings into a mutual fund. Once your savings account hits $1,000 or so, transfer the money into an account at one of these three established mutual-fund families (most funds require a minimum investment): Vanguard (877-662-7447), Fidelity (800-343-3548), or T. Rowe Price (800-541-6066). You will earn a higher interest rate and have a variety of funds to choose from. Call the toll-free number and a representative will walk you through the process. The fund company can deduct the money directly from your checking account after your paychecks are deposited.