Chapter 5: Save Money

Setting aside cash on a regular basis is a habit worth getting into. While saving money may at first seem difficult or even impossible, in most cases all it takes is a commitment to the process and adopting an efficient savings system.

How much should you save?
An excellent goal is to save ten percent of your monthly net income. Therefore if you make $1,500, ideally you would put $150 into a savings account. Of course, not everyone can set aside that percentage, so if money is tight, begin with whatever you can afford, even if it’s only a few dollars.

Make saving easy
There are many proven techniques to jump-start saving:

• Use automatic transfers from your checking to your share and passbook savings accounts, or payroll deductions right from your paycheck. What you don’t see you don’t miss.
• Save all or a portion of each raise you receive.
• Deposit bonuses, income tax refunds, and cash gifts from birthdays, holidays, or other special occasions into savings.
• Save all of your loose change. A quarter here and a dime there will add up.
• Once you’ve paid off your car or other installment obligation, start putting the same amount in savings.
• Save even if you have debt. If your debt carries a high rate of interest, it is to your financial benefit to concentrate on repayment. Find a sensible balance. By saving even a little as you are repaying debt, you’ll start an emergency account, kick the habit of borrowing, and establish a savings routine.

Establish an emergency fund
An emergency fund is an important part of every savings plan. Having three to six months worth of essential living expenses set aside will guard your finances against unexpected job loss, medical problems, and high expenses. Good places to keep your emergency fund include:

• Share and passbook savings – Traditional share and savings accounts are insured up to $100,000 and will allow you to withdraw funds penalty-free at any time. In exchange for total liquidity and stability, these accounts provide very low investment returns.
  
  
• Money market deposit account – The interest rates for money market deposit accounts tend to be slightly higher than passbook savings accounts while providing a similar function. Though these accounts are insured and withdrawals are penalty-free, the number of allowable transactions is limited.
  
  
• Money market mutual fund – While not insured, the investments in money market mutual funds are low-risk. They provide immediate access to funds without early-withdrawal penalties, and typically offer higher rates of return than passbook savings and money market deposit accounts.