Friday, December 26, 2008

Put Savings (and Yourself) First With a Budget

Personal savings have reached record lows, yet saving is essential to ensure a comfortable future. Learn how to track monthly expenses with a budget and potentially free up cash for saving.

Put Savings First With a Budget
Where does that money go? America, it seems, is in the midst of a savings crisis. Personal savings rates have dropped in recent years and remain low by historical standards as many people continue to spend beyond their means.

If you're among those Americans who can't seem to save, it might be time to create a budget. A budget allows you to understand where the money goes and may help you free up cash for important savings goals, such as college and retirement.

Getting Started
Setting up a budget will require some work, but the benefits more than offset the time invested. How you create your budget is up to you. You may choose a piece of financial planning software, such as Microsoft Money or Quicken, or you may choose the paper and pencil route. The above worksheet is a simple yet inclusive budget that you can use to get started.

The first element of any budget is your income, or how much money you receive each month. This can include paychecks, legal settlements, alimony, royalties, fees, and dividends from investments that you do not reinvest. Once you know what your monthly income is, you can use a budget to make sure you don't spend more than you earn, thus helping to reduce debt and freeing up cash for savings.

Next, you need to know how you spend your money. Start by tracking your spending for a month. Gather bills and receipts, and don't forget to include newspapers from the corner store and trips to the soda machine. Don't assume any expense is too small to record.

Write down your expenses and break them into categories. Using the budget worksheet as an example, we find Fixed Committed Expenses -- mortgage, loan, and insurance payments that stay the same from month to month; Other Committed Expenses -- things you can't live without, like food, utilities, and clothing; and Discretionary Expenses -- things you like but don't necessarily need.

Less Spending = More Savings
Once you know where the money goes, it's time to analyze your expenses. There probably isn't much you can do about Fixed Committed Expenses without moving or getting rid of the family car. However, if these expenses are greater than your monthly income, you are probably carrying too much debt to effectively save.

You may find some room to economize in Other Committed Expenses, but look at Discretionary Expenses first. This is typically the easiest place to reduce spending. Begin by canceling magazine subscriptions to titles you don't read. Eat fewer meals out, or choose less expensive restaurants. Across much of the country, you can rent two DVDs for the price of a single adult ticket to a movie and throw in some microwave popcorn for a dollar more.

Digging Deeper
Once you've reduced discretionary spending, look at those Other Committed Expenses. Can you reduce the grocery bill with coupons or more economical meals? How about taking public transportation instead of cabs?

One area to closely examine is credit card debt. If a high balance is keeping you from saving, you need to find ways to trim those monthly payments. Call your credit card company and ask them for an interest-rate reduction, or shop around for a card with a lower rate. You can find a list of low-rate cards through CardWeb (1-301-631-9100 or online at Beware of low introductory "teaser" rates that increase to much higher rates after six months.

You could also consider a home equity loan, which may offer a tax deduction, or a consolidation loan. Make sure that you'll be able to afford the monthly payments before you take the loan. Banks can foreclose on a home equity loan within 90 days if you miss payments.

If your savings are still being crushed under the weight of debt, or if you're having trouble making minimum monthly payments and covering necessary expenses, consider getting some help. The nonprofit National Federation for Credit Counseling (call 1-800-388-2227, or visit can help you set up a budget and negotiate payment schedules with lenders for a modest fee. Once you start paying off your credit cards, the extra money can be used to build savings.

The Goal: More Savings
Once you've figured out where to economize, you can enter amounts in the Expected column of the budget. Notice that Savings and Children's Education appear under Fixed Committed Expenses. This is to encourage you to pay yourself first, a key rule of saving. By setting aside a certain amount each month for savings, you can build toward your goal without missing the money. You may be able to set up a payroll savings plan through your bank or credit union. Also look into any employer-sponsored retirement plans you may have at work, which potentially offer tax benefits along with savings for the future.

It might also help to set a savings goal, both for short- and long-term needs. Studies have revealed that families with savings goals tend to save more.

Remember that your budget is a living document. As your circumstances change, so will your goals and needs. Review your budget every few months to make sure it reflects your goals and to see if you are saving as much as you possibly can.


* You can use computer software or a pencil and paper to create a budget.
* Analyze your spending for a month to see where your income goes. If your living expenses are greater than your income, you'll need to find ways to economize.
* Your spending can be broken down into three categories: Fixed Committed Expenses, Other Committed Expenses, and Discretionary Expenses.
* To free up cash for savings, begin by reducing Discretionary Expenses, then look at Other Committed Expenses.
* Pay down credit-card debt aggressively. Once the debt is paid off, direct the extra money to savings.
* Set aside some of each paycheck for savings goals. Ask your bank or credit union about payroll savings plans and investigate your employer-sponsored retirement plan.
* Review your budget periodically to make sure it is still in line with your needs and goals.

What to Do When Layoffs Loom

The possibility of layoffs is very real for a lot of households this year, with some sources estimating that unemployment could reach 10% this year. The sooner you start showing your boss that you're indispensable, the better chance you have of hanging on to your job if tough times hit your place of employment.

Here are some of the things that smart employees do to keep themselves relevant on the job:

* Act as if your job is always on the line, even if you're still on the company payroll. Strive to make yourself more valuable -- not just to your current employer, but to any potential employers you'll need to win over in the future.
* Imagine yourself interviewing for a new position. Can you point to specific ways in which you've improved your skills and grown on the job? If so, keep up the good work.
* Document your own accomplishments. Update your resume regularly to reflect your ever-increasing skills on the job -- you can use this during your performance review and salary negotiations now, or for finding other employment quickly, should the worst happen.

If, however, you've been coasting in your current position, it's time to take some initiative. Try these surefire ways to increase your value as an employee:

* Work while you're at work. According to a Gallup poll, most of us spend an average of 75 minutes a day using our office computers for activities other than work. Online shopping, online gaming, and personal email are just a few of the ways we waste our employer's time, to the tune of a more than $6,000 loss in productivity per employee per year. Do yourself (and your boss) a favor, and keep the other activities to a minimum.
* Hit the books. Take continuing-education credits at your local community college, enhance your computer skills with an advanced course relevant to your work, or look for weekend workshops that target a developing skill related to your job. Your employer may even have a program to help defray the costs. Take advantage of these paid continuing-education opportunities; ironically, it might be your old employer who writes your ticket (via updated job skills) to a fabulous new job.
* Be visible. Perception can be everything. You can be a productive, highly skilled employee, but if you continually skip companywide events or staff meetings, others may perceive you as slacking off. Make sure you attend functions where your presence will indicate commitment, arrive at meetings on time, and volunteer for tasks that will raise your profile in the larger organization.
* Look like you care. "Dress for success" means different things across different work cultures, of course, but there are always limits. Your work may not require that you wear a suit every day, but regardless, make an effort to look well-groomed, up-to-date, and ready to assume your supervisor's job.
* Communicate your ambition. Ask your supervisor what you need to do to progress in the company. Overtly expressing your ambition is the first step in setting high expectations; be ready to spring into action after that. Your supervisor may hand you extra challenges and responsibilities; these are your opportunities to differentiate yourself from the pack.

Even if you are never faced with a layoff, acting "as if" can enhance your value as an employee. Who knows? It might even win you a promotion.

Stock futures up slightly as investors eye GM

Stocks futures rose on Friday as General Motors (NYSE:GM - News). shares rallied in pre-market trade, lifted by the move to turn affiliate GMAC into a bank holding company.

GMAC LLC, the financing arm of General Motors won Federal Reserve approval on Wednesday to become a bank holding company, giving it access to government lending programs and helping it stave off bankruptcy.

Shares of General Motors rose nearly 14 percent to $3.70 in premarket trade.

Another potential market spur Friday can be investors deciding there is some value over the longer-term.

"It may not be the bottom, but it's no time to be 100 percent in cash," said Ron Weiner president and founder of RDM financial in Westport Connecticut.

"There are too many bargains looking out 24 to 36 months."

S&P 500 futures rose 7 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures gained 62 points, and Nasdaq 100 added 8.50 points.

Asia stocks edged up on Friday and Japan's Nikkei average posted its highest close in six weeks as investors bet a raft of government measures will help the global economy recover next year.

Trading activity overseas was light with many financial markets closed following Christmas Day. Markets in Hong Kong and Australia were closed while many markets in Europe will remain closed.

Oil rose above $36 a barrel on Friday after the United Arab Emirates joined leading exporter Saudi Arabia in deepening supply curbs in line with OPEC's biggest ever output cut announced last week.

U.S. stocks rose on Wednesday in a shortened session before Thursday's Christmas Day holiday. The Dow snapped a five-day losing streak, while the S&P 500 and the Nasdaq reversed two days of declines.