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Personal finance experts: Tough economy no excuse to stop saving

Saving money or working toward that goal is possible even in today's slowing economy, Central Illinois financial advisers say. But it may take some sacrifices and the dedication to "pay yourself first" by saving money as an obligation similar to another payment.

Wednesday, July 9, 2008 10:15 PM CDT

By Michelle Koetters

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BLOOMINGTON -- Gasoline costs more. Groceries cost more. College costs more. No way can I put money into savings. As expenses rise, people have a tendency to panic and assume they can't stash money, said Carol Burroughs, a certified financial planner and founder of Forward Financial Planning in Normal. That's the wrong attitude, she warns.

"Definitely, at all costs, people should continue to save," Burroughs said. "It shouldn't be the first thing that gets axed."

Saving money or working toward that goal is possible even in today's slowing economy, Central Illinois financial advisers say. But it may take some sacrifices and the dedication to "pay yourself first" by saving money as an obligation similar to another payment.

Americans today generally do not save, as shown by the country's negative savings rate, said Thomas Green, a certified financial planner and owner of Green Financial Group in Streator.

The trend is getting worse, but not because of national economy woes, which are just symptoms of the problem of people living above their means because they would rather have everything now instead of save, he said.

"We want the reward without any of the work," Green said.

That instant-gratification lifestyle won't disappear until people want to save money and learn discipline, Green said. The way to begin is to write down every penny you spend, he said.

That budget plays a large role, said David Stokes, a financial adviser with Edward Jones in Bloomington.

"You know how the GI Joe guy said, 'Knowing is half the battle?'" he asked. "Knowing your budget is half the battle."

Focus on costs you can control, Stokes said.

"Gas is completely out of your control, unfortunately. What you can do is ride with a person from work. ... Just a matter of conservation makes a difference."

Stokes thinks about money like multiple waterfalls, the first of which is for daily needs.

Another waterfall is a safety net, such as three to six months' of living expenses. The next cascade is retirement savings, with the "wants" in life following on the next level.

Kevin Kuebler, a financial consultant with AXA Advisors in Bloomington, has a similar approach.

Kuebler wants people to fill three buckets, one for day-to-day expenses with some savings, a second with money for a future house or car and the third for retirement.

These days, people may need to dip into savings in their first bucket: "You could call this an emergency," he said.

At the same time, maybe it's time to rethink your spending, he said.

That's the approach Burroughs suggests.

While you never should raid your long-term savings, it may be appropriate to use emergency money if you've recently lost your job, Burroughs said. Do not use that money to cover your additional gasoline costs to carry on life as usual this year: "That word 'emergency' is critical," she said.

At the same time, don't let increased expenses steal from your previously budgeted savings, Burroughs said.

"Once you start that habit of not saving, it becomes really difficult to start it up again," Kuebler agreed.

If things get so bad that you save less - or not at all - you need to make up the difference later, he said.

That could be tricky.

"If times are hard now ... how are they going to get better? Why would I believe I could save more later?" Kuebler asked. "The answer is not to stop saving but to stop spending." 

Path to success

Central Illinois financial advisers offer the following tips to help you save in today's economy:

  • Don't spend money on non-essentials until you can pay off debt.
  • Contribute to a 401k or another retirement account.
  • Take a bagged lunch to work.
  • Cancel magazine subscriptions and club memberships.
  • Cook at home.
  • Re-examine payments for services like your home phone. Could you save money through a bundled package?
  • Consider raising your insurance deductibles to reduce your premiums.
  • Take on a second or third part-time job.
  • When you get a raise, put it into savings.
  • Put money you get back as rewards from credit card purchases into savings.

SOURCES: Thomas Green, Green Financial Group; Carol Burroughs, Forward Financial Planning; Kevin Kuebler, AXA Advisors; David Stokes, Edward Jones

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