Take Steps to Ensure a Golden Tomorrow

To say that we in the United Statesare not a nation of savers is anunderstatement. The number ofnews stories about this topic—in particular,how many Americans approachingretirement are financially unprepared—are too numerous to count. You may be inthis category (ie, approaching retirementor recently retired) and thinking to yourselfthat it's too late to start a savings program.You may be wondering how tosave money on the reduced income thatcomes with retirement. It is important torealize that it is never too late to beginsaving. Start small if you need to, butdon't delay building a savings programinto your household budget. Whetheryou are saving for a retirement dream tripor a rainy day, it's well worth it.

Consider the Issues

Secure investments:

In setting up a savings plan, you willneed to evaluate your budget and determineyour savings goals. To move forwardon your plan, you will need to determinehow much risk you feel comfortable within your portfolio. In general, there is morerisk in stocks than in interest-bearing savingsprograms. As you approach or beginretirement, you may want to considermore secure types of investment or savingsprograms that will pay you dividendsor interest without exposing you to highrisk. Savings accounts,CDs, and US securities are the most securetypes of savings instruments.

There are four steps to setting up a savingsplan. Step one is evaluating your budget.This first step requires finding out theanswers to the following questions:

• Do you have adequate life, health,and disability insurance? In other words,do you have the right kind of insurancefor your needs? Another type of insuranceto consider is liability insurance—incase someone is injured in your home oron your property.
• Do you have enough money in anemergency fund? Your emergency fundshould be equivalent to 3 to 6 months'worth of living expenses. It's importantto have several months' worth of moneyset aside, in case there's an unexpectedchange in your income.
• Did you decide on the trade-offsbetween the obligations and benefits ofhome ownership vs renting? If you ownyour own home, it can be part of yoursavings strategy because the propertyshould appreciate each year.
• Have you reviewed your credit cardsituation? If you have a significantamount of credit card debt, try to paythe cards off as quickly as possible. Creditcards have relatively high interest rates,and that interest is money that could bebuilding up your savings.

Decide Your Dreams

As you are getting your financialhouse in order, you need to start thinkingabout things you want to do, nowthat you are not working or are workingonly part time. This is step two. Start bysetting a goal. For example, let's say youwant to take a leisurely car trip acrossthe United States to see some of thenational parks. Estimate the cost of thetrip and a tentative time when you wantto take it. Then, divide the expected costby the number of months preceding themonth you plan to take the trip.

Reap the Rewards

If you can save that monthly amount,you'll be able to pay for the trip whenthe time comes to travel. If you can't putaway that amount each month, then figureout how much you can put away,and schedule the trip when you have putaside enough money. The desire for thetrip should help motivate you to save. Ifthe trip seems too expensive in one lumpsum, set smaller goals. Put aside moneyfor the hotel expenses for 6 months, thepark fees for 3 months after that, and soon. Breaking your goals into manageableparts may help you feel more comfortablewith your savings effort.

Determine Your Steps

Step three is determining how toreach your goals. For example, if you'veset a goal of saving $4000 by the end of2 years so that you can take your trip,you need to have a plan to achieve thatgoal. Now is the time to decide whetherto invest your savings in the stock marketor deposit the money in some type ofinterest-paying savings program, such assavings accounts, CDs, and US securities.As mentioned earlier, interest-payingsavings solutions are the most secure.Most bank accounts and CDs are insuredfor up to $100,000 by the FDIC. Securitiessuch as US Savings Bonds are backed bythe federal government for the amountthat you hold. In other words, you'reguaranteed to get back all of your principalplus any accrued interest.

Implement the Program

Step four is implementing your savingsprogram. You can find more informationon US securities online atTreasuryDirect's Web site (www.treasurydirect.gov), where you can also open anaccount to purchase, manage, hold, andredeem savings bonds in an entirely electronicaccount. There are no charges orfees, and you can buy the paperlessbonds in penny increments ranging from$25 to $30,000 each year. Because youdon't need $1000, $5000, or an evenlarger amount to use TreasuryDirect, it isespecially suited for small savers whodon't have a lot to put away. In additionto being exempt from state and localtaxes, US securities are backed by the fullfaith and credit of the government.

Your financial freedom is important toprotect. Take these steps today to ensurethat you have savings in place for yourfuture. Then prepare to enjoy the well-deservedfruits of your savings program.

Paul Vogelzang is the executivedirector of investor education and communications at theBureau of the Public Debt in the US Department of Treasury. Formore information, visit www.treasurydirect.gov.