NEW YORK (Reuters) - My grandmother had a coffee can for spare silver coins. My Dad saved at his local post office in a savings account. Those were a sign of the times -- the U.S. postal savings system was the first government-guaranteed savings vehicle, but it disappeared in 1967.
Now, we face a savings landscape that is so much more complicated than the one my grandmother and father faced. At present, there is no universal savings account with one set of rules.
Each year I bemoan the fact that I can’t consolidate the menagerie of retirement accounts I’ve opened and funded over the years. I have Roth individual retirement accounts, rollovers and 401(k) accounts that I’d love to merge, but can’t due to varying tax rules.
Even if savings can’t be simple again, it should be effortless, automatic and instantly rewarding. There are some ways to do that, fairly efficiently, even now, with the myriad pressures and complexities of the current economy.
To get your savings in motion, get a plan. If you make it automatic you’ll save more, because then you’ll have fewer opportunities to spend money you should be setting aside.
"We know that people save better when they have a savings plan," said Ken McDonnell, American Savings Education Council program director, who is one of the many sponsors of America Saves Week (www.americasavesweek.org/). Here is my easy seven-step plan for building savings:
- Create a liquid cash back-up fund. This is money you’ll need for emergencies, out-of-pocket medical bills, taxes, repairs and basic living expenses in case you’re laid off, fall ill, or have any other unpleasant financial surprises. Most financial advisers suggest you keep enough cash to cover at least six months of essential living expenses in an insured savings, checking or money-market account. If you’re self-employed or in a volatile industry, you may need more -- up to a year’s worth of savings is advisable for these scenarios.
- Create your autopilot plan. This is simple. No matter what kinds of savings accounts you use, set up automatic contributions. You can do this with all retirement plans by linking payroll to 401(k)-type programs. With banking products, link checking to savings through auto-debits. What you don’t touch, you don’t spend. You can do this with existing accounts or set up new ones online. Many banks and credit unions make this easy for you, and provide cash incentives from time to time.
- Save money from cash rewards credit cards. There are many brands (here),
most of which pay you back an average 1 percent on purchases. Some pay as much as 5 percent on some items. Save your rebates in a savings account. Just watch out for excessive charges and fees; the fine print can eat up your savings.
- Use credit cards for long-term savings. I use the Upromise Card (www.upromise.com/welcome), which allows cardholders to channel rebates directly into savings accounts. I put my rebates directly into college savings accounts for my two daughters, and have saved several thousand dollars this way. The card's rebates can also be linked to a high-yield savings account. BabyMint(www.babymint.com/) has a similar and also worthwhile program for college savers.
- Cut spending to boost savings. Go through your monthly bills and see where you can trim the fat; maybe you can cut your health club membership or cable bill. Even paying off your credit-card bills in full every month will save on finance charges and force you to spend within your means. Keep a diary of your essential and non-essential expenses.
- Form an investment club. We had a family stock-purchasing club for almost 10 years. When we needed to cash out, we had enough money to pay for emergency medical bills. You probably won’t beat the market -- we didn’t -- but it was a lot of fun and forced us to save every month. When we pulled the plug, we had enough savings to cover some significant bills without dipping into retirement funds (investment club assets are held in taxable accounts and structured like partnerships).
- Consider dividend reinvestment plans, also known as "DRIPs." The best plans allow you to purchase new shares of dividend-paying companies without paying a commission. Your dividend payments are automatically reinvested in new shares (www.dripinvestor.com/index.asp).
You can make your savings and reinvestment automatic through these purchase plans.
This is just a sampling of ways to save. As far as the rewards go, try running some numbers through online calculators (www.choosetosave.org/) to see how quickly you can reach your goals. Make it a family affair and don't forget to treat yourself -- IF you reach your objectives.
John Wasik is a Reuters columnist. The opinions expressed are his own.; Editing by Linda Stern and Andrea Evans