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January 5, 2013

To a financially fit new year

Saving at all ages key to lifetime of security

By Cathy B. Koplen
The Daily Star

---- — One of the popular New Year’s resolutions is a promise to become more financially fit, but these days it seems a difficult promise to keep.

According to the U.S. Department of Labor, there are 12 million unemployed people in the country, and even those who have jobs are finding it difficult to make ends meet. 

How is it possible to save money when budgets are already so tight?

It is a matter of discipline and habit, said Erna Morgan McReynolds, managing director of wealth management and financial advisor of The Morgan McReynolds Group at Morgan Stanley Wealth Management.

“People who set up a life plan, they have a lot more money,” McReynolds said. “They have learned to live within their means.

“The whole point is to start with a percentage to save. That way, as you earn more money, the amount you are saving will grow. It doesn’t matter the sum, pick a percentage.”

McReynolds saved 25 percent of her income from the time she began working. She said in the beginning it was difficult because many of her associates lived in better apartments and drove nicer cars. However, she now feels the benefit of blindly adhering to her 25 percent rule.

Although there are different challenges at different stages of life, and young people just starting out have different considerations than retirees, most financial advisers agree that a savings plan is the first step to financial fitness.

“It is natural to think you can wait, but you can’t,” said Sarah Manchester, a financial adviser at Edward Jones in Oneonta. “The thing is, life gets more expensive.

“You start out and you may have some college loans to pay back. But then, you get married and have a family, and then you are saving for college for your children.”

Manchester said no amount is too small to begin saving — $25 a month will add up.

McReynolds and Manchester both advised that people start with a savings account. When a comfortable cushion has been accumulated, then it is time to consider investing.

“We have a worksheet and we look at the last six to eight months of bills,” Manchester said. 

Many investors suggest people save enough money to cover four to six months of regular expenses.

One of the more difficult scenarios for saving money is the multi-generational families. They have to provide for their parents and their children, and putting money aside may seem almost selfish in tight economic times.

There are ways to balance even a tight budget and still save for emergencies.

Many companies offer matched retirement plans. That part of the paycheck is inaccessible, and therefore not considered when budgeting. 

“If your company provides you with a 401(k) or IRA, get the maximum amount matched,” Manchester said. “It is free money.”

Individuals who are not provided with a retirement plan can request a bank automatically take a monthly sum from a checking account and move it to a savings account.

“Pay yourself first,” McReynolds said.

Families saving for college should look into New York’s 529 plan. Money saved in this plan is tax deferred.

“Instead of the grandparents buying a sweatshirt, think about contributing to the 529 plan,” Manchester said.

Many grandparents are living on a fixed income. If they have investments, they must consider how best to manage them. There are capital gains taxes if stocks must be sold for income.

“When we look at planning for the retiree, we are talking about income needs and budgets,” Manchester said. “Lifestyles do not change. Often, older people who come in will want to make sure they do not outlive their money.”

The AARP has suggestions as to how retired people can cut their monthly expenses. Many of the suggestions are sound advice for people of all ages They include preparing meals at home, unplugging household items when not in use and wearing a sweater inside instead of turning the thermostat higher. 

If a person realized $20 of savings a month and that money were put into a savings account, the money would not be missed and their future that much more secure.