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

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Savings Strategies

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

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

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