Saturday, July 25, 2009

Start Early On Good Saving Habits

Start Early On Good Saving Habits
Time is our best friend when it comes to investing and saving money. To let saving money becomes almost second nature, it is good to start early in one's career or life.

These days, there are so much financial information and choices that one gets overwhelmed into inaction. Another extreme is when we get influenced by all the hubris and keep adjusting our financial strategy.

I prefer to employ a systematic procedure of saving money. And regardless of what the experts tell us, we can embark on a sound savings plan without consulting financial firms which charge onerous commissions and fees.

The first step towards good savings habit is to sign up for a 401(k) plan (most large companies offers one) because of the tax savings, convenience and other benefits. You should contribute at least enough to get the full employer match.

A decent starting point is to make sure your combined contribution from personal and company is at least 10% of your salary. If not, just kick in whatever it takes to hit that goal.

Besides contributing to your retirement savings, you should also build up an emergency fund of at least three months' worth of living expenses in a bank money-market account or savings account that pays competitive yields.

The idea isn't to earn big bucks, that's not going to happen in today's environment. Instead, the aim is to have a safe cash hoard to draw upon in the event of a financial setback or emergency, instead of taping on CDs or other retirement savings and incur taxes and penalties for early withdrawal.

Once you have built up an emergency fund, you can either divert the regular savings that was going to that fund to your 401(k), thus boosting the contribution rate there.

Or you can put the money into a Roth IRA that would complement the 401(k). By funding the Roth with low-cost mutual funds, you can avoid bloated fees that act as a drag on growth.

It is important to instill the habit of saving so that it becomes routine but don't set your goals too high or let money saving become an obsessive or punishing habit.

If you don't enjoy saving money and have a good time in the process, it is easy to give up halfway through. You must have heard of the failures of weight loss fanatics who go on unrealistic crash diets. It is unsustainable and dangerous.

Instead, think of saving money as part of a regular expense you must budget for. Living within our means and leading a financially responsible life is possible if you put your mind to it. Try it out today.