Savings Strategies for Non-Savers
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Savings Strategies for Non-Savers

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Dr. Barbara O'Neill presents savings strategies for clients who are new to saving money or need help finding money to save.

Dr. Barbara O'Neill presents savings strategies for clients who are new to saving money or need help finding money to save.

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  • America Saves is a national social marketing campaign that seeks to motivate individuals to develop a saving habit as a core component to financial stability. We have found that the best way to reach individuals is through the organizations and institutions in which they work, participate and utilize, like financial institutions and non profit organizations. <br />
  • we use the SMART acronym to assist people in setting successful financial goals. We all know that goals are important, but if we don’t reach our goals, it can be discouraging. Creating SMART goals gives us an action plan for reaching the goals we set. So here we go. <br /> Make Your Goals Specific <br /> Write down exactly what it is you want to accomplish. For example, instead of writing “I want to pay off credit card debt,” write “I want to pay off the $5000 balance on my Visa Card.” Or instead of writing, “I want to start an emergency fund,” write, “I want to save $1000 in an emergency fund. <br /> Make Your Goals Measurable <br /> In general, financial goals are measured by a dollar amount, and you want to be able to see the progress you are making toward your goal. So in the example we used before, if I want to pay off $5000 in credit card debt, I need to figure out how much money I need to pay per month, based on my deadline (this is the Time-Bound part- we’ll get to it shortly). If I wanted to pay it off in 12 months, I would need to pay around $420 per month (plus a little extra to cover interest and fees). Each month, I will see measurable progress toward my goal as my balance decreases. <br /> Make Your Goals Adaptable <br /> With finances, we always need to be adaptable. Things change, life happens, emergencies come up, and we have to change our plans. Make sure that your goals are adaptable for changes in your financial situation. For instance, if you figure out that you want to pay $300 per month toward paying down your credit card debt, but then you have some unexpected expenses one month, you may have to pay less this month and either make up for it next month or stretch out your timeline. <br /> Make Your Goals Realistic <br /> One of the biggest reasons we do not reach our financial goals is because we set the bar too high. If I only have $100 extra dollars in my budget, but I commit to paying $300 toward my credit card bill, I am setting myself up for failure. I could make this goal more realistic by 1) lowering the amount I plan to pay toward my credit card bill and stretching out the time I will be paying it down or 2) looking for other places in my budget where I can cut expenses in order to make this payment possible. <br /> Make Your Goals Time-Bound <br /> Set deadlines for your financial goals! If you are anything like me, tasks without deadlines get pushed farther and farther down my to-do list. If you are serious about meeting your financial goals, set deadlines by which you want to accomplish them. This will also help you to determine how to measure your goals (see making your goals measurable above. <br />
  • These are examples of SMART <br />
  • Track Income and Expenses <br /> To create a savings plan, start by tracking all of your income and expenses. Income is money that is received whether from employment, welfare payments, child support, alimony, or other sources. Expenses refer to payments that are made for products and services. Some expenses will be fixed and others will be flexible. Fixed expenses are payments that must be made each month and the amount stays the same. Examples are rent, car payment and insurance. Flexible expenses vary in amount depending on your choices. Examples are clothing, food and electricity. Flexible expenses are where you are likely to have the opportunity to save money to put toward savings. <br /> Some expenses that only occur a few times during the year such as insurance premium payments. To calculate the monthly amount, divide the total payment by the number of months of coverage. For example, divide quarterly payments by 3, semi-annual by 6, and annual by 12 to get the monthly amount. <br />
  • What is meant by the phrase “Pay Yourself First”? Accept answers – <br /> Before you get your hot little hands on your money, before it lands in your checking account, put it aside in a savings or investment account. <br /> If we wait to save what is left over each paycheck or month, what is likely to happen? Accept answers – <br /> It will be spent instead of saved or invested. <br /> Ask your payroll department to split your paycheck by sending the amount directly to a savings or investment account. <br /> If your payroll department doesn’t offer the ability to split your paycheck, ask your bank or credit union if they can automatically divert a specific amount each pay period to your savings or investment account. Or, have your bank, credit union or brokerage automatically draw a pre-set amount from your checking account on a specific date. <br /> Do you have online bill pay? Set up a recurring payment to your brokerage account or the bank where you have a separate savings account. <br /> Transition – <br /> What accounts do you use for your goals? Accept answers <br /> All of these answers are possible. But the important thing is to choose the type based or your goal. - click <br />
  • Cash flow, very simply, is the relationship between the total of household income and expenses: <br /> Earn more than you spend and you have positive cash flow. <br /> Spend more than you earn and you have negative cash flow. <br /> Occasional periods of negative cash flow can happen to almost anyone and are probably not a major concern. When negative cash flow becomes a way of life, however, it is very dangerous because it indicates that you are living beyond your means. In order to spend more than you earn, you are probably depleting savings and/or relying on credit to maintain your lifestyle. <br /> When one wants to lose weight, they can do three things: eat less, burn more calories through exercise, or do a little of both (better diet and exercise). <br /> When one wants to have positive cash flow, they can also do three things: increase income (or products or services in lieu of income), reduce expenses, or do a little of both (increased income and reduced expenses). <br />
  • This slide lists possible strategies to increase household income: <br /> Adjust tax withholding, using Form W-4 through your employer. <br /> Taking advantage of available tax benefits, such as deductions for tax-deferred savings plans, the child tax credit, and the earned income tax credit. <br /> Starting a home-based business or freelancing your talents and skills. <br /> Trying to increase/collect child support or alimony (caution: this may require court intervention and the expense of a lawyer). <br /> Accessing public benefits such as free rabies shots for pets and low-cost immunizations and health screening tests). <br /> Selling assets, such as a unneeded car, or having a garage sale. <br /> Upgrading job skills through additional education and training. <br /> Charging adult children “rent” and bartering (swapping) products/services. <br />
  • Note to Instructor: Review each household expense category and ask participants to share strategies that they have used to reduce expenses. Some examples are: <br /> Housing- refinancing mortgage, canceling private mortgage insurance when equity reaches 20% of home value, buying energy efficient appliances, trading down to a smaller home at retirement, etc. <br /> Food- combining coupons and store sales for double savings, buying in bulk when food is on sale or in season, buying cheaper store brands, etc. <br /> Transportation- keeping a car for as long as possible (8-10 years), buying “new used” (2-3 year old) cars, purchasing low cost airline tickets, having car routinely maintained to avoid major repair problems, etc. <br /> Clothing- shopping sales and “alternative” vendors such as thrift and consignment shops, avoiding dry clean garments, coordinating colors, etc. <br /> Utilities- using e-mail instead of the telephone, low-cost telephone calling plans, insulating the water heater, lowering the thermostat, etc. <br />
  • Here’s What $20 a week Adds Up To: <br /> These figures on the slide are provided in the 1998 Retirement Confidence Survey report prepared by the Employee Benefit Research Institute (EBRI). <br /> At a 5% rate of return, an investor would have $36,100 more than they would otherwise have in 20 years, $72,600 more in 30 years, and $131,900 in 40 years. <br /> At a 10% rate of return, the accumulations are even more dramatic: $65,500 in 20 years, $188,200 in 30 years, and over a half million dollars ($506,300) in 40 years. <br /> The longer that money is invested, and the higher its rate of return, the more that an investor will accumulate. <br /> The following quote from the EBRI report says it all: <br /> “The message is clear that seemingly small amounts of money saved on a regular basis over long periods of time can accumulate into a nest egg that would make a difference at retirement.” <br />

Savings Strategies for Non-Savers Savings Strategies for Non-Savers Presentation Transcript

  • Welcome to the Military Families Learning Network Webinar: Saving Strategies for Non-Savers A  few  days  aPer  the  presenta6on,  we  will  send  an  evalua6on  and  links  to  an  archive   and  resources.       We  appreciate  your  feedback.    To  receive  these  emails,  please  enter  your  email   address  in  the  chat  box  before  we  start  the  recording.     Once  we  start  the  recording,  all  chat  will  be  recorded  and  archived.   This  material  is  based  upon  work  supported  by  the  Na6onal  Ins6tute  of  Food  and  Agriculture,  U.S.  Department  of  Agriculture,     and  the  Office  of  Family  Policy,  Children  and  Youth,  U.S.  Department  of  Defense  under  Award  No.  2010-­‐48869-­‐20685.    
  • Welcome to the Military Families Learning Network Webinar: Savings Strategies for Non-Savers www.eXtension.org/militaryfamilies     facebook.com/militaryfamilies     blogs.eXtension.org/militaryfamilies     twi[er.com/MilFamLN     bit.ly/MFLNwebinars     To  receive  no6fica6ons  of  future  webinars  and  other  learning  opportuni6es  from  the   Military  Families  Learning  Network,  sign  up  for  the  Military  Families  Learning  Network   Email  Mailing  list  at:  h"p://bit.ly/MFLNlist   This  material  is  based  upon  work  supported  by  the  Na6onal  Ins6tute  of  Food  and  Agriculture,  U.S.  Department  of  Agriculture,     and  the  Office  of  Family  Policy,  Children  and  Youth,  U.S.  Department  of  Defense  under  Award  No.  2010-­‐48869-­‐20685.    
  • Additional Resources Available https://learn.extension.org/events/1426
  • Today’s Speaker Dr. Barbara O’Neill, financial resource management specialist for Rutgers Cooperative Extension, has been a professor, financial educator, and author for 35 years. She has written over 1,500 consumer newspaper articles and over 125 articles for academic journals, conference proceedings, and other professional publications. She is a certified financial planner (CFPÒ), chartered retirement planning counselor (CRPCÒ), accredited financial counselor (AFC), certified housing counselor (CHC), and certified financial educator (CFEd).
  • Saving Money: Savings Strategies for Non-Savers https://learn.extension.org/events/1426 Barbara O’Neill, Ph.D., CFP®, AFC, CHC Rutgers Cooperative Extension oneill@aesop.rutgers.edu
  • “Street Cred” Published in 1994; still available online http://www.amazon.com/Saving-Shoestring-ExpensesReduce-Stash/dp/0793111188
  • Week A national social marketing campaign designed to build a culture of savings in America as a core component of financial stability
  • Savings Coat of Arms •  TR- Places where I save money… •  TL- Obstacles to saving money… •  Middle- A personal savings goal… •  BR- The best way that I save money… •  BL- Advantages of saving money...
  • Question #1 Would you please share a section or two from your Savings Coat of Arms?
  • Saving is an Important Part of the Financial Planning Process
  • Three Keys To Successful Saving
  • Set a Goal…. SMART Goals Specific Measurable Achievable Realistic Time Bound
  • Make Progress Toward SMART Financial Goals •  Short-term goals (< 3 years) •  Intermediate-term goals (3-10 years) •  Long-term goals (> 10 years) Match savings and investments to financial goal time frame •  Money market account for emergency fund •  Stock index fund for retirement in 30 years
  • Examples of SMART Goals •  Save $2,600 for a down payment on a car by saving $50 a week for one year. •  Reduce credit card debt by paying an extra $15 a month (above the minimum payment) for twelve months.
  • Financial Goal-Setting Worksheet http://njaes.rutgers.edu/money/pdfs/goalsettingworksheet.pdf 1 Goals Short-Term (under 3 years) Medium Term (3-10 years) Long-Term (10 or more years) 2 Approximate Amount Needed 3 Month & Year Needed 4 Number of Months to Save 5 Date to Start Saving 6 Monthly Amount to Save (2-4)
  • Then Do the Math! •  Approximate amount needed •  Number of months to save •  Divide number of months into goal amount •  Try to automate savings Example: $15,000 goal divided by 48 months = $312.50 per month to save
  • Start Early…Small Amounts Add Up! http://www.dinkytown.net/java/ CompoundSavings.html
  • 18
  • Make a Plan…. Track Income and Expenses •  Income: money that is received •  Expenses: payments that are made •  Fixed expenses are payments that must be made each month and the amount stays the same. •  Flexible expenses vary in amount depending upon your choices. •  Occasional or periodic expenses occur less often than monthly
  • Save Automatically…. “Pay Yourself FIRST!” • Pre-authorized deposit to savings or investment account • Pre-authorized transfer to savings account from checking account
  • Question #2 How do you save automatically and/or encourage others to save?
  • Definition of Savings “Setting money aside from present earnings to provide for the future.”
  • Types of Savings •  Emergency fund (3-6 months expenses…or more) –  About half (49%) of Americans have 3 months’ expenses saved; 27% have no savings; 24% have at least 6 months –  http://www.usnews.com/news/articles/2013/06/24/survey-more-than-one-quarter-ofamericans-have-no-emergency-savings •  “No-touch” money for long-term goals •  Savings for short/intermediate term goals •  “Accumulation fund” for large, irregular bills
  • Saving vs. Investing •  Saving •  Investing –  Provides money for short- –  Accumulates money for long-term goals term goals and emergencies –  Higher average return that cash assets –  “Parking place” historically –  Principal is “safe” –  Can lose principal –  Low risk –  Volatility of account value –  Low reward –  Potential for capital appreciation (stock) –  “Seed money” for investing
  • The Rule of 72 Source: Garman/Forgue, PERSONAL FINANCE, Fifth Edition
  • 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
  • Why People Don’t Save •  Overspending and outstanding debt •  No goal or plan •  Lack knowledge about how/where to save •  High cost of living •  Lack of motivation
  • 15 Ways to Save Money
  • 1. Collect Coins •  Something that many people do •  Many banks and credit unions have free coin-counting machines for account holders •  Avoid paying a fee to count your own money •  “Kick it up a notch”: $1 a day plus change •  Use see-through containers for motivation
  • 2. Anticipate Extra Paychecks •  Paid weekly: 4 months with 5 paydays •  Paid weekly: 2 months with 3 paydays •  Mark paydays on calendar •  Use “extra” money to: –  Reduce debt –  Save
  • 3. Automated Employer Retirement Savings Plans •  401(k) Plans- Corporations •  403(b) Plans- Schools, colleges, non-profits •  Section 457 Plans- State/local government •  TSP- Service members/federal government
  • 4. Other Automated Saving Opportunities •  Direct deposit of paycheck •  Mutual fund AIPs (automatic investment programs) •  Direct stock purchase plans •  Treasury Direct plan for U.S. Savings bonds •  Credit union •  Holiday clubs •  Other?
  • 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”
  • 6. Accelerate Debt Repayment •  Always pay more than minimum payment •  Get PowerPay analysis from www.powerpay.org
  • 7. Track and Slash Expenses •  Write down everything you/family spend •  Get monthly total for all categories •  Study numbers and identify “leaks”
  • Spending Plan Leaks
  • Question #3 Have you tracked your own expenses? If so, what did you learn about your spending habits?
  • Improving Cash Flow •  Relationship between income and expenses –  Positive cash flow –  Negative cash flow •  Three sustainable ways to improve cash flow –  Increase household income –  Decrease household expenses –  Do both
  • Ways to Increase Income •  Adjust tax withholding/tax benefits (EITC) •  Add a second job or work overtime •  Start a small business •  Increase/collect child support/alimony •  Access public benefits •  Sell assets •  Upgrade job skills •  Charge adult children room & board •  Bartering •  Other?
  • Ways to Reduce Expenses •  Housing •  Food •  Transportation •  Clothing •  Utilities •  Other expenses See http://pubs.ext.vt.edu/354/354-155/354-155.html
  • Assess Spending Plan (Budget) •  List after-tax sources of income •  List expenses –  Fixed (including revolving savings) –  Variable –  Irregular (periodic) •  Compare budgeted amount with actual amount •  Adjust as necessary
  • Spending Plan Worksheets •  Excel Spreadsheet: http://njaes.rutgers.edu/money/#resources •  Downloadable printed worksheet: http://njaes.rutgers.edu/money/pdfs/ fs421worksheet.pdf
  • 8. 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
  • 9. “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
  • 10. Increase Yields on Savings •  Interest rates are extremely low •  Expected to remain so through 2014-2015 •  Higher-yielding alternatives: –  Credit union share accounts –  CDs (laddered purchases) –  U.S. savings bonds –  Treasury notes –  Money market mutual funds –  Short-term bond funds (increased chance of volatility)
  • 11. Reinvest Cash Distributions •  Dividends and capital gains on –  Mutual funds –  Stock purchases •  Check appropriate box on application form •  Painless way to “grow your money”
  • 12. “Installment Plan” IRAs •  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 –  50 weeks x $80 = $ 4,000
  • 13. Take Advantage of “Free Money” •  Employer 401(k) or 403(b) match •  Tax credit for low income savers –  50% singles < $18,000; mfj < $36,000 AGI –  20% singles: $18,001-$19,500 mfj: $36,001-$39,000 –  10% singles: $19,501-$30,000 mfj: $39,001-$60,000 •  50% credit means half of deposit is paid for by government
  • 14.Take Advantage of CatchUp Contributions •  Extra amounts for persons age 50+ to save in tax-deferred retirement savings plans –  IRAs: Extra $1,000 for a maximum of $6,500 –  Employer plans: Extra $5,500 for a maximum of $23,000 •  Can result in tens of thousands more by 65
  • 15. 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
  • Question #4 Can you think of any other savings strategies for non-savers?
  • Seeing the Possibilities is Key •  Bankrate.com Savings Goal Calculator: http://www.bankrate.com/calculators/savings/ savings-goal-calculator-tool.aspx •  FINRA Savings Calculator: http://apps.finra.org/calcs/1/savings •  Council for Economic Education Compound Interest Calculator: http://www.econedlink.org/interactives/ index.php?iid=2&type=educator
  • EBRI: What $20 a Week in Savings Adds Up To: •  5% Return: •  10% Return: –  20 Years: $36,100 –  20 Years: $65,500 –  30 Years: $72,600 –  30 Years: $188,200 –  40 Years: $131,900 –  40 Years: $506,300 See http://www.ebri.org/pdf/ surveys/rcs/ 2002/02rcssof.pdf
  • Family Communication is Key •  Rutgers study of Extension MONEY 2000 participants in NJ and NY •  Asked “What challenges you the most in making progress toward your financial goals?” •  Children/family listed by 11.5% of sample •  Need to teach communication skills –  Example: Money “I” messages; “I feel stressed out when we charge more than $200 a month on credit cards”
  • Experiencing Success is Key •  Saving Challenges –  America Saves Challenge: http://goo.gl/kgYWXo •  Savings “Lotteries” –  http://saveyourrefund.com (Save Your Refund) –  http://www.d2dfund.org/ (D2D Fund) –  http://ne.savetowin.org/ (Save to Win; credit unions) •  IDA Programs –  http://cfed.org/programs/idas/directory_search/ (CFED IDA Program Search) •  “The $11 Savings Story”
  • Personality Characteristics Are Key: Organization and Planning CFA Research: Having a savings plan with specific goals can have beneficial effects, even for lower-income families. Those with a savings plan are much more likely to: •  spend less than their income and save the difference •  have adequate emergency savings http://njcfe.org/wp-content/upLoads/2012/02/asw2012pr.pdf
  • Automation is Key •  Direct deposit of paycheck •  Saving in employer credit union •  Checking to savings account transfers •  Checking to mutual fund or stock transfers •  Automated tax refund savings deposits with Form 8888 •  Other?
  • Question #5 What other factors help people become successful savers?
  • Resources for Savers •  Choose to Save/ASEC: http://www.choosetosave.org/ •  America Saves: http://www.americasaves.org/ •  Ballpark Estimate (Calculator): http://www.choosetosave.org/ballpark/ •  Save and Invest (FINRA): http://www.saveandinvest.org/ •  Save and Invest Military Center: http://www.saveandinvest.org/MilitaryCenter/
  • Every Small Step Makes a Difference http://njaes.rutgers.edu/sshw/ What People Think About, They Bring About!
  • Promote Saving and America Saves Enrollment America Saves Video #1: Saving Money with America Saves http://www.youtube.com/watch?v=yChFVQvzOGc America Saves Video #2: Saving Money on a Tight Budget http://www.youtube.com/watch?v=FV0Ib07WXOM America Saves Video #3: Set a Goal http://www.youtube.com/watch?v=1bc8VmugNE4 America Saves Video #4: Make a Plan http://www.youtube.com/watch?v=1KWyCQz91N8 America Saves Video #5: Save Automatically http://www.youtube.com/watch?v=4bhJ0ck2qSA America Saves Video #6: The America Saves Challenge http://www.youtube.com/watch?v=7UZPZUcwvww
  • Video Outreach to Service Members •  Saving Money With Military Saves: http://www.youtube.com/watch?v=E0HqKb1xx5k •  Saving Money in the Thrift Savings Plan: http://www.youtube.com/watch?v=SDY0Cc4kqZQ •  Debt-to-Income Ratios: http://www.youtube.com/watch?v=loV5ff8rt5o •  Credit Reports: http://www.youtube.com/watch?v=bUXvc-jyrsk Plus 6 other videos at http://www.youtube.com/user/moneytalkBMO
  • Question #6 Can you think of any other good resources to help non-savers save?
  • Turn Your Dreams to Reality
  • First Steps •  Commit to saving regularly •  Pay down debt •  Set aside and adequate emergency fund •  Do a retirement savings calculation •  Save until it “hurts”
  • America Saves Week Co-coordinated by America Saves and the American Savings and Education Council. A national initiative designed to encourage and assist Americans, especially lower-income households, to start saving and build wealth Thousands of local partners including: § FDIC § Jump$tart Coalition for Personal Financial Literacy § Department of Defense § Cooperative Extension § CUNA § Federal Reserve Board § Social Security Administration § Many others America Saves is managed by the Consumer Federation of America
  • Celebrate America Saves Week: Take the Pledge Become an American Saver today! http://www.americasaves.org http://www.americasaves.org/for-savers/savingstools-and-resources/pledge
  • Make It Personal: Write Down Your Savings Goal •  Download the poster: http://www.americasavesweek.org/forindividuals/picture-your-savings-goal •  Write your savings goal •  Take a picture •  Post it online and at home
  • Closing Thoughts “If saving money is wrong, I don’t want to be right”- William Shatner “If you would be wealthy, think of saving as well as getting”- Ben Franklin “If it is to be, it is up to me”
  • Questions? Comments Experiences? Upcoming Webinar: Tuesday, Feb. 27, 11 a.m. ET: Saving Money: Research Insights https://learn.extension.org/events/1442 Please complete the webinar evaluation form and CEU request form
  • Continue the Conversation •  Find the Personal Finance Team online –  Facebook: PersonalFinance4PFMs –  Twitter: #MFLN –  LinkedIn: Military Personal Finance Managers Group