The Color of Money: The time to start saving? Now

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WASHINGTON -- As we get further away from the horrors of the Great Recession, it becomes easier for Americans to fall back into bad financial habits.

And one of those bad habits was not putting enough into a rainy day fund. Even when money is tight and you are trying to pay off debts, you have to save.

To help people understand the importance of savings, many organizations are planning events for America Saves Week, Feb. 24 through March 1. The Consumer Federation of America manages America Saves. The slogan for the nationwide effort, which includes Military Saves Week, is "Start Small. Think Big."

It's appropriate. I know that for many Americans, finding money to save is tough. When experts recommend that you need to save at least six months of living expenses, I see people take a heavy breath. I see in their eyes the impossibility of saving enough to meet that goal.

But don't freak out about the big number. Start small. My grandmother Big Mama used to say, "You can't have a dollar without a penny." Small savings over time do add up. To start, aim to save one month's worth of expenses. Then, as you get extra money, add it to your emergency pot.

Bankrate.com takes the pulse of people's financial health each month through its Financial Security Index. In the latest index, Bankrate.com found that more than a quarter of Americans have more credit card debt than savings.

The lack of savings is "a reflection of the stagnant incomes, long-term unemployment and high household expenses," said Greg McBride, Bankrate.com's chief financial analyst.

During America Saves Week, consumers can follow a daily plan to get started. Here's how:

Today: Make the choice on this day to save and then figure out where you can cut expenses to find the funds to put away. Yes, this means doing a budget. You can't save if you don't know where the money is going to come from. So go to www.americasaves.org and search for "54 Ways to Save Money." You'll find tips to save in a number of areas including on food, insurance, prescription drugs and your cable bill.

Tuesday: This is the day you decide to finally develop a plan to pay off your debt. I like a system I call the "Debt Dash." List all your debts, starting with the one with the lowest balance. Target that debt first while making the minimum payments on all the others. I've found that if people can quickly pay off a debt -- like running a 100-yard dash -- it gives them a psychological boost that in turn motivates them to act faster to knock the rest off their list. If you don't think you can do it yourself, go to www.debtadvice.org to search for a local nonprofit credit counseling agency to help you come up with a plan.

Wednesday: Now that you've spent two days figuring out where to cut, it's time for action. Automatically deposit money from each paycheck into a savings account. Start with $5 if you have to, but try to challenge yourself. Try saving 2 percent to 5 percent of your net pay.

Thursday: Review your retirement savings goals. If you have access to a workplace retirement plan such as a 401(k) but aren't participating, start saving in it today. If you are already saving for retirement, increase the amount by one or two percentage points. If you can -- because you've done your budget and made some big cuts -- max out your contributions. This is the ultimate rainy day fund.

Friday: If you're getting a tax refund, earmark some or all of it for savings. I recently had someone ask me if her $1,200 refund should go toward debt or savings. She said she didn't have an emergency fund but that she really wanted to make a dent in her debt.

I told her to do both, save and pay down the debt. If you don't save something and an unplanned for expense arises, what are you likely to do? Get further into debt, that's what. So you need to have some savings so you don't go any further into debt. And the IRS has made it easy for you split your refund automatically if you want to put part of it into a savings account. Use IRS Form 8888.

Saturday: At the end of the week assess your progress. You get Sunday off. But if you procrastinated, use the weekend to take some action.

"Financial stability cannot exist without a healthy savings account," said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling.

Wealth happens when you save.


Readers can write to Michelle Singletary c/o The Washington Post, 1150 15th St., N.W., Washington, D.C. 20071. Her email address is michelle.singletary@washpost.com.

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