Saturday, January 1, 2011

7 Things to Start Saving For on January 1st

With the hustle, craziness, and expense of the holidays barely behind us, saving may be the last thing on your mind. But, as America falls more and more in debt, and many people are still plagued by un- or under-employment, saving has never been more important. And what better time for a fresh financial start than the new year?
Here are a few things that I believe every family (including my own) should start saving for, if you haven’t already, on January 1.

1. Christmas presents for next year. How much did you spend on your children, friends, and family this year? Was it painful to look at your December bank statement? First, before you even begin saving, it’s important to set a realistic budget for gifts. If your children are anything like mine, they are done playing with their gifts shortly after they’re opened (and, if they’re anything like my youngest son, they’ve probably started playing with the boxes). Be purposeful about the gifts you give, and ask your family to do the same. Once you’ve developed your budget, divide that number by 11 (January-November) and you’ll know how much you need to save each month to prepare. Then, once December comes along, you won’t have to stress over where the money is coming from. It will already be there, waiting for you to spend!

2. Family vacations. Whether you’re planning to take a weekend camping trip down the street or a weeklong trek across Europe, vacations cost money. Once again, budgeting is essential. There are numerous websites and resources to help you save money on vacations, so use them. Think about when you want to go, where you want to go, and how much you can afford. Then, divide the expense by how many months you have until the big trip. So, for example, if you’re planning to take a family cruise in July, and you’ve discovered that it will cost about $2,400 (after doing diligent research), then you know you’ll have to save $400 per month in January-June. It may sound like a lot, but it won’t hurt as much as charging the expense and paying interest on it later.

3. Summer camps. Even if you stay home with your children, I am a big believer in summer day camps. My children have attended amazing camps—everything from horseback riding to jewelry making to martial arts. It’s a great way to keep your kids’ minds engaged while school is out, and also helps them learn new skills and make new friends. But, these camps can be expensive, so plan early. You certainly don’t have to fill up their entire summer, and probably shouldn’t. But, you should aim for at least a couple of weeks of fun, interesting, and challenging camps. Most camps will release their schedules by March. But, you can get an idea of what camps your children would be interested in, and how much they will cost, by looking at the camps’ fliers from last summer. Prices usually don’t go up by much, but just to be safe, plan for about a 10% increase. You should also look into any scholarships that may be available. Many camps offer sliding scale fees or scholarships, such as some for military children. I keep a summer camp spreadsheet for the kids each year (which I usually start in February) which lists the week, type of camp, location, registration deadline, and fees. The list usually starts off as a wish list and gets narrowed down to something more doable based on our financial ability that year. Once you have your camps selected, let the saving begin!

4. School clothing and supplies. Picture this: It’s August 1st. School is starting in a few days and your children need supplies. Lots and lots of supplies. Plus, the jeans that needed to be rolled up last year now make your darling son look like he’s expecting a flood. It’s time for new school clothes. But, where will all the money come from? If you’re like many families in the US, you get out your credit card to pay for all of these new-school-year expenses. But, you don’t have to. Think about how much you typically spend on supplies and clothing (again, try to find savings), and then start saving. If you typically spend $600, saving $100 per month in January-June will lessen the blow of the end-of-summer financial blues.

* Numbers 1-4 can be saved for in a short-term savings account through your regular bank. Put the money aside each month and then don’t touch it until it’s time to pay for the intended items.

5. Emergencies. Everyone needs to have an emergency fund of at least $1,000. And no, this is not the morning-Starbucks-trip fund. While I agree that coffee can, at times, be an emergency, that’s not what this account is for. This is for car repairs, busted water heaters, and sprained ankles. Because, as we all know, emergencies can and will happen. Save for this as quickly as you can, depending on your ability.

6. Independence Fund. Women, this is for you. I strongly, strongly, strongly believe that every woman needs to have her own savings account. Even if you and your spouse share bank accounts, which is fine, you should also have your own. I’m not encouraging keeping secrets. In fact, it’s perfectly fine for your husband to know about it. But, this is your money. It has nothing to do with not trusting your husband, or planning to separate, or any other negative intention. It’s about you, your independence, and your right to have it. It’s that simple. (Did I mention that I strongly believe in this?)

7. Retirement. If you aren’t doing so already, it’s crucial that you start saving for retirement now. Immediately. Today. For the military families who are reading this, please don’t depend on your military retirement. If it’s difficult to make ends meet now, imagine doing so with half (or less) of your current income. It’s not likely. And you don’t want your golden years to become your ramen noodle years, right? Everyone needs to save for retirement, no matter how secure you think your future might be. This money should be saved in a 401K, TSP, or Roth IRA that you never touch. If you can deposit it automatically from your paycheck or as an allotment, do it. And then, pretend it’s not there. Saving for retirement may be rough. But, struggling to save now may prevent you from struggling to live later.

I know this list probably seems overwhelming. But, most of us have some funds that we could save, with just a few minor lifestyle changes. Look at your budget, trim anything that you can, and then decide how much you can afford to save each month. Now, add 20%. Because yes, you can afford it. You just have to try. And, if it looks like you can’t afford to save for everything on this list, it’s time to start cutting back. If you can’t afford that family cruise, consider taking a float trip at a nearby river. If you can’t afford the amount you’d like to spend on Christmas gifts, consider making gifts or drawing names with family. And, if you absolutely cannot afford summer camps for your children, at least plan free or inexpensive activities for them, so that summer is about more than television and video games. But, no matter what, establish an emergency fund, start saving for your retirement, and put aside some money for yourself—and start doing it now. I guarantee that you’ll be glad you did. And you never know, when 2011 comes to an end, you may just look forward to saving in 2012!

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