October 2, 2008

Bailing Ourselves Out, Part 1: Savings

While it's virtually guaranteed that the bailout bill will pass in some form or other, there is no guarantee that it will fix, end or even moderate the current economic crisis. Rather than wait for the Treasury Secretary to throw more money at the problem, I came up with a few ideas that can be easily carried out by you, me or anyone that will address some of the basic causes of this mess.

Part 1: Start a Savings Account.

I've seen several finance articles recently that mentioned that the personal savings rate in America is at or near zero percent. I'm sure it's not true that no one in this country is saving any money, but it seems quite likely that we aren't saving enough. And one of the big factors in this credit crisis is liquidity shortages -- simply put, banks haven't had as much cash on hand as they needed.

As I mentioned yesterday, I have a savings account for emergencies. I've actually had the account at ING Direct for some time now, but only in the past year have I made a real effort to keep a balance.

I set an initial goal for myself to have a cushion of $1,000. It took me almost a year to reach that goal, including one or two occasions where I emptied the fund to cover a bill or buy myself something. But I kept at it and now have a $1,400 balance. Do I sleep better at night? Absolutely.

If, like me, it's hard for you to put money aside and keep your hands off it, ING or another internet-based bank might be your best choice because the money isn't immediately available. Transfers take two business days, so you can't impulse buy a designer purse or car stereo. And most let you make deposits in small amounts, so even if you can only do $10 a week, you can start to put something away for a proverbial rainy day. Shop around to see where you can get the best interest rates on savings accounts in your area. Online banks tend to offer better rates than brick-and-mortar banks, but look at all of them. And don't forget local credit unions, as they sometimes offer great options for their members. You can also compare accounts from several banks at websites like Bankrate.com.

I know a few people who keep credit cards "for emergencies." I did the same thing with my first credit card. I promised myself it was only for emergencies. Then it was only for necessities. Pretty soon, I was swiping it to cover dinner at Taco Bell. Credit cards can be very useful, but when it comes to real emergencies they are no substitute for the reassurance of cold hard cash.

Try to start saving something now. Set a goal of having at least the amount of one full paycheck in your emergency account. If you can put aside money today, when credit everywhere is tight and everyone is cutting back, you'll have an advantage, regardless of what Wall Street is doing. And while everyone else is running for the exits and charging stuff on their "emergency" credit cards, you can enjoy knowing that you're on more solid financial ground.

1 comment: