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NJCFE symposium saving strategies for those who don't save-12-11

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Savings Strategies

Savings Strategies

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  • 1. Saving For Those Who Never Save Barbara O’Neill, Ph.D., CFP Rutgers Cooperative Extension
  • 2. Definition of Savings “ Putting money aside from present earnings to provide for the future.”
  • 3. Savings Coat of Arms
    • Places where I save money…
    • Obstacles to saving money…
    • Savings goal…
    • The best way that I save money…
    • Advantages of saving money...
  • 4. Types of Savings
    • Emergency fund (3-6 months expenses)
    • “No-Touch” money for long-term goals
    • Savings for short/intermediate term goals
    • “Accumulation fund” for large bills
  • 5. Reasons To Save
    • To cope with emergencies
    • To purchase “big ticket” items
    • To fund high-cost future goals
    • To generate income
    • For security and peace of mind
    • For the good of the country
  • 6. Why People Don’t Save
    • Overspending and outstanding debt
    • No goal or plan
    • Lack knowledge about how/where to save
    • High cost of living in NYC metro area
    • Lack of motivation/external LOC
  • 7. 1. Collect Coins
    • This is something many people do
      • February 2002 AP Article:
        • Statistics from Coinstar (coin machine company)
        • $7.7 billion in coins tucked away
        • Estimated 56% of Americans save change
        • 77% of Americans have a jug of coins
        • Coinstar cashed in $1.2 billion in change (2001)
    • “Kick it up a notch”: $1 a day plus change
    • Use see-through containers for motivation
  • 8. 2. Anticipate Extra Paychecks
    • Paid weekly: 4 months with 5 paydays
    • Paid bi-weekly: 2 months with 3 paydays
    • Mark paydays on calendar
    • Use “extra” money to:
      • Reduce debt
      • Save
  • 9. 3. Automated Employer Retirement Savings Plans
    • 401(k) plans- corporations
    • 403(b) plans- schools and non-profits
    • Section 457 plans- state/local government
  • 10. 4. Other Automated Savings Opportunities
    • Mutual fund AIPs (automatic investment programs)
    • Direct stock purchase plans
    • Treasury Direct for U.S. Savings bonds
    • Credit union
    • Holiday clubs
    • Other?
  • 11. 5. Continue Paying a Loan or Bill: To Yourself
    • Continue making monthly payments- to savings- after a loan or expense ends
      • Car loan
      • Mortgage
      • Child care
    • Does not affect lifestyle
    • Don’t feel “deprived”
  • 12. 6. Accelerate Debt Repayment
    • Always pay more than the minimum payment
      • Slash Your Debt (book) example:
      • $5,000 balance, 17% APR, 2% minimum
        • 10 cents/day extra saves $2,257 and 11 years
        • 25 cents/day extra saves $4,148 and 19 years
        • $1.00/day extra saves $7,624 and 30 years
    • Get PowerPay analysis through Cooperative Extension
  • 13. 7. Track and Slash Expenses
    • Carry pocket tracking form with codes
    • Write down everything you/family spend
    • Get monthly total for all categories
    • Study numbers and identify “leaks”
    • Use Finding Money to Save Worksheet to identify potential savings
  • 14. 8. Fund IRAs on the “Installment Plan”
    • Don’t need to save contribution all at once
    • Simply need to meet minimum of IRA custodian
    • Can fund with- or like- a holiday club
      • 50 weeks x $10 = $ 500
      • 50 weeks x $20 = $ 1,000
      • 50 weeks x $40 = $ 2,000
      • 50 weeks x $60 = $ 3,000
  • 15. 9. Take Advantage of “Free Money”
    • Employer 401(k) or 403(b) match
    • IDA program matched savings
    • Tax credit for low income savers
      • 50%, 20%, and 10% credits for up to $2,000 deposit
      • 50% credit means half of deposit is paid by government
  • 16. 10. Take Advantage of Catch-Up Contributions
    • Extra amounts for persons age 50 and over in 2011
      • IRAs: extra $1,000
      • Employer plans: extra $5,000
    • Can result in tens of thousands more by 65
    • Don’t need to save all at once
  • 17. 11. Reinvest Lump Sum Payouts
    • EBRI Study: Even small payouts add up!
      • $5,000 distribution at 25, 35, 45, 55
      • 8% return
      • Almost $200,000 at 65 if all 4 distributions are rolled over into tax-deferred accounts
      • If age 25 lump sum is cashed out, only $84k
    • Research shows small sums more likely to be cashed out and spent
  • 18. 12. Reinvest Cash Distributions
    • Dividends and capital gains on
      • Mutual funds
      • Stock purchases
    • Check appropriate box on application form
    • Painless way to “grow your money”
  • 19. 13. Bank Windfalls (a.k.a., “Found Money”)
    • Retroactive pay
    • Gambling proceeds
    • Tax rebates
    • Gifts and inheritances
    • Insurance dividends
    • Other?
    • Check www.missingmoney.com for state unclaimed property
  • 20. 14. “Kick It Up a Notch”
    • Whatever you’re doing to save, do more
      • Example: 3% of pay in 401(k) instead of 2%
      • $2 a day plus change instead of $1 a day
      • $100 EE bond instead of $50 EE bond
    • Best times to do:
      • When expenses end
      • When income increases
  • 21. 15. Increase Yields on Savings
    • 2000 Study by Consumer Federation of America:
      • Roughly $1 trillion in low-interest accounts averaging 2.1%
      • Estimated $30 to $50 billion in foregone interest
      • Higher-yielding alternatives: CDs, savings bonds, Treasury notes, short-term bond funds
  • 22. Seeing the Possibilities is Key
    • EBRI Retirement Confidence Survey: Impact of Saving Another $20 Per Week
      • 10 years: $13,700 (5%); $18,200 (10%)
      • 20 years: $36,100 (5%); $65,500 (10%)
      • 30 years: $72,600 (5%); $188,200 (10%)
  • 23. Closing Thought “ If it is to be, it is up to me” Comments? Questions? Experiences?
  • 24. Rutgers Cooperative Extension Financial Education Resources
    • Small Steps to Health and Wealth ™ book
    • Jeopardy! style PowerPoint game
    • Millionaire style PowerPoint game
    • Time Value of Money problems
    • Financial case studies

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