There are many ways to save more for retirement, emergencies

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Balancing a retirement and college savings can be overwhelming. Here are 6 tips that will help ease the long-term planning.
USA TODAY

Americans still to struggle to save money and have been fighting this battle for years.

Such difficulties were understandable when the economy was in recession and job losses mounting. But now hiring is brisk and wages are starting to climb a bit. Even the new tax-reform legislation could make more dollars available.

Yet it doesn’t seem to be getting much better.

Households still are saving only about 3% on average — 3 cents for every dollar earned — and credit-card debt is climbing, recently topping $1 trillion in total. Consumer-loan delinquencies are still low and personal bankruptcies minimal, but those indicators of financial strain will reappear the next time the economy slows.

Americans recognize the problem. In a November survey of 1,000 adults by credit-bureau Experian, a desire to save more money was the top financial resolution cited, garnering responses from 48% of those interviewed. Most of the other top choices dealt with related issues, such as a desire to pay off credit cards, to avoid opening more credit-card accounts and to create a budget. Here are some strategies that might help:

Put your savings on autopilot

As Experian noted in its report, savings becomes easier if you do it automatically rather than wrestle over each decision. If you can divert a set percentage of income each paycheck into a bank savings vehicle, mutual fund or other account, you will eventually stop thinking about the process.

This is one of the big arguments in favor of workplace 401(k)-style plans — the money gets invested automatically. Matching funds, tax savings and other benefits are nice, but the ability to save automatically from each paycheck might be the biggest benefit for a  lot of people. 

It doesn’t stop there. Many 401(k) plans will gradually and automatically increase the amount of savings for employees over time unless they specifically object or opt-out of that arrangement. Most people don’t. 

More: When a $1 million retirement nest egg isn’t enough

More: How to start taming your budget-busting bills

More: Credit card debt hits new record, raising warning sign

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Set achievable goals, but push yourself

If you’re going to succeed with a savings plan, set your initial targets low enough that you can realize some confidence-boosting successes. You’re not going to start saving 25% all of a sudden if you haven’t had much success before. Thus, it’s better to strive for, say, 5% and raise it by maybe 1 percentage point yearly after that. Saving a small sum is better than getting frustrated and abandoning the effort entirely.

How much should you strive to save? There’s no set answer, with results influenced by how much you earn, what you’re saving for and your ability to find employment in case of a job loss. General goals range from 5% to 15% of pay. One key objective, at least initially, should be in compiling enough money to build an emergency cash reserve.

In this sense, a good rule is to amass enough money to meet six to nine months of expenses, according to the National Endowment for Financial Education. But if that seems too ambitious, shoot for $500 to start, the group suggests.

Laura Walton of the TCI Foundation, a Tucson non-profit that provides free financial classes for moderate-income young adults, offers this tip: Start by putting a dollar in a money jar and increasing that by one dollar each week. By the final week of the year, you’d be putting away $52, and the jar would hold almost $1,400.

View the process differently

One reason people struggle to save or embark on any investment plan reflects the reality that the goals can seem unrealistic if not insurmountable and filled with obstacles. The TCI Foundation likes to frame the issue differently by describing the saving process not as a chore or sacrifice but as a bargain or reward for people who start early.

In other words, early-bird shoppers who start saving at a young age can purchase future “retirement dollars” at big discounts, the group said. The earlier people get going and the more cash they sock away, the larger the discounts become.

For example, assuming an 8% average yearly investment return, a person who starts at age 25, invests in a stock-focused mutual fund and leaves the money alone might be able to buy future retirement dollars, available by around age 65 or so, for as little as 5 cents on the dollar today.

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Look for better deals

Focusing on income and saving is only part of the challenge: You also want to cut costs on the expense side of the equation.

The National Endowment for Financial Education, which found widespread angst over money issues in its own late-2017 consumer survey, suggests that people get into the routine of shopping for better terms on various ongoing expenses such as insurance policies, cellphone plans and other utility services. If you’re a longtime customer, ask for promotions or discounts. Credit cards are another financial product in which comparison shopping can bear fruit, especially as interest rates are rising again.

Also, pay attention to small expenses that can mushroom. For example, Vanguard last year issued a study estimating that people could save around $3.50 a day, or $1,260 annually, by brewing their own coffee rather than buying it in a restaurant. For those who then invested that sum in a stock-bond fund earning 6% annually on average and held it for 30 years, the account would grow to around $106,000, ignoring taxes.

Vanguard provided another example attributed to famed investor Warren Buffett, who estimated that getting his hair cut every five weeks rather than four, while spending $18 a visit rather than $25, could generate $300,000 over a lifetime. The idea isn’t to groom yourself like Buffett but to recognize, like he does, that small income hikes or cost decreases can compound to sizable sums over time.

Reach the reporter at russ.wiles@arizonarepublic.com or 602-444-8616.

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If you haven’t started investing yet, these tips will help get you on the right track for retirement.
USA TODAY

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