5MinutesForMom.com

Spinning off Tuesday’s post, the question remains: If you do manage to cut your spending on discretionary purchases, how much money does that help you save every year?

Bills.com has a nifty Ways to Save Money feature that shows you how much your savings can add up if you sock away the money in an interest-bearing account. For example, cutting $5 per week from your grocery bill every week adds up to a savings of $1,300 over five years, assuming a 1 percent rate of return. That’s a fairly simple change that you can make with dramatic long-term results.

One drawback: At the moment, low-risk savings vehicles (like savings accounts and certificates of deposit) are paying peanuts — a fraction of a penny on the dollar in most instances. And Bills.com’s calculator does not allow users to select anything under a 1 percent return, so it may be overestimating how much your savings will compound over time.

But we offer a solution. Punch your estimated savings and the actual rate of return you’re getting in your savings account into our Compound Interest Calculator to play around with more realistic outcomes.

RetireSensibly.com

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

CDs, money markets, and Roths — oh my. The world of saving for the future is an alphabet soup, but we’ve put together this handy glossary for helping you figure out where you should stash your cash for a rainy day.

1. Savings and checking accounts. A savings account is probably the very first account you ever opened — perhaps back when going to the bank meant a free lollipop. These linked accounts are the simplest way to put away money and have access to it when you need it. Just make sure you’re not accidentally draining it by paying overdraft or ATM fees.
2. Online money market account (MMA). If you would like to make better interest on your money than what your savings account is offering, consider an online money market account. Online banks can pay a higher interest rate on savings because of a lack of overhead (you can check yields here). However, transferring money to your checking account can take 3 days and you may be limited to a certain number of debits per month, so it’s not the best place for a true emergency fund that could save your hide in a crisis.
3. Certificate of deposit (CD). A CD is a perfect option if you have cash you won’t need for a few years (like for a down payment) and want it to grow with very little risk. Bankrate reports that 3-year CDs are currently paying between 1.5 and 1.9 percent in interest, many with no minimum deposit. However, if you withdraw that money before the CD matures, you’ll pay a penalty that will cancel out whatever you’ve earned in interest.
4. 401(k) and 403(b) plans. These common retirement account is available through many employers: 401(k)s through companies and 403(b)s through nonprofit groups. If you get a company match or are looking to pay less in taxes, it is your best bet for saving for your golden years. You can deduct any money that you contribute to it and pay taxes when you withdraw it in retirement. Also, a company match is free money that your workplace is trying to put in your pocket, so take them up on that benefit!
5. Traditional and Roth individual retirement accounts (IRAs). A traditional IRA is similar to a 401(k) in that you can contribute pre-tax dollars to it (up to $5,000 per year). But you can open it yourself at a bank of your choosing in any year in which you earn income. If you are not offered a company match or you think there’s a chance taxes on retirees will be higher in the future than they are now, the Roth IRA is a better bet. You fund it with post-tax earnings so you do not get the tax savings now, but the money can grow and you won’t have to pay taxes on it again in the future. And remember: They earlier you start contributing, the more your money can grow.

Still undecided about how best to save? Check out our features on retirement savings and starting an emergency fund.

RealSimple.com

Welcome to this week’s edition of our Tuesday Top 5, Econ4U’s weekly tips post to help you manage your money in five easy steps.

Whether you’re drawing up a draft of your first budget or you’d like to tweak an existing plan, there are simple ways that you can free up more cash for savings or paying down debt. Today we examine a few of the most painless methods of doing just that.

1. Re-examine discretionary income. After adding up all your regular monthly expenses (like your rent, your gas bill, and your groceries), how much do you have left over? And where does it go? It’s not always the infamous latte: If you go to the movies every few weeks, download smartphone apps to relieve boredom, or head to happy hour at least once a week, chances are you have opportunities to save more. Figure out what they are and take advantage of them.
2. Make saving as necessary as paying your bills. The phrase “pay yourself first” always makes it onto lists like these, but what exactly does that mean? It means transferring money to savings from your paycheck before you have a chance to spend it. If you wouldn’t neglect to pay your rent, adopt that same mindset for your savings account — both for retirement and short-term savings.
3. Buying on sale doesn’t always mean you’re getting a deal. It’s as simple as it is true: The easiest way to save money is not to spend it. If you clip coupons for groceries that you wouldn’t normally buy otherwise, you’re better off ignoring coupons altogether. And remember that stores will often use “sale” signs to entice buyers while simultaneously marking up the regular retail price, so you’re not getting the deal you think you are.
4. Fill in your money pits. It could be a gym membership you no longer use or a car that’s in the shop more than it’s on the road. If the benefit you’re getting is outweighed by the expense, it’s time to cut your losses.
5. Shop around for better interest rates — even after you’re locked in. With closing costs to consider, refinancing a mortgage can be a costly proposition in the short term. But with rates trembling near record lows, those closing costs may pay for themselves in just a few years if your credit score is in decent shape. And refinancing a car loan (or renegotiating your cable bills) can be even cheaper ways to save more money monthly. Remember: It costs nothing to ask.

As Consumer Reports summarizes:

Overdraft programs are really high-cost, short-term loans with quadruple-digit APRs. Most banks charge flat overdraft fees. So if your balance goes to zero purchasing even a $1 pack of gum with your debit card could trigger a fee of $35 or more. Once you’ve exceeded your balance, every purchase you make could generate another fee. And, some banks still impose long hold times before you can use the money from checks you deposit, which increases the possibility that you will overdraw your account.

To the extent that you can avoid overdrawing, you should take every precaution to maintain a safety cushion of at least $100 in your checking account. But since that isn’t always possible, there are better options out there for short-term loans if you find yourself in a pinch.

But the biggest drawback for consumers is that it limits banking options for people who make even one mistake. A ChexSystems history functions as a credit report for your checking account, except it only tracks negative information.

For example, if you have a ChexSystems report and you go to open a new deposit account with a bank that uses the company’s database, the bank can deny you the account on the basis of just one infraction. Even if you’re able to open an account and keep it in good standing, the bank can later close it if a ChexSystems report on you comes up.

Of course, smart consumers stay on top of their finances. The good news is that since ChexSystems is a credit reporting agency, consumers are entitled to one free report per year, which you can obtain online. Do they have incorrect information on you? Dispute the entry by following this link.

The Wall Street Journal

Bank of America Corp. and other banks are preparing new fees on basic banking services as they try to replace revenue lost to regulatory rules, in a push that is expected to spell an end to free checking accounts for many Americans.

Free checking accounts, which have been widely available for more than a decade, have been a boon to middle-class consumers and attracted low-income customers to the banking system for the first time.

Customers will likely be required to pay new monthly maintenance fees on the most basic accounts that don’t generate a lot of activity. To avoid a fee, customers will have to maintain certain account balances or frequently use other banking services, such as credit and debit cards, automated teller machines and online accounts.

It’s an important debate and a key lesson in economics. Banks aren’t going to willingly make less money, so if the feds restrict overdraft fees, the affected banks will then kill free checking to make up the difference. But what happens when lenders can’t make it up elsewhere? If, say, there’s a limit on interest rates, lenders will simply stop offering that credit option rather than taking the loss. It’s already happening: Cap interest rates on short-term loans, and the government is effectively taking away the highest-risk consumers’ access to credit.

In an update on the old saying, the road to (financial) hell is paved with good intentions — and unintended consequences.

Making retirement saving a priority is the recognition that it’s easier to go without now (when you’re young and able-bodied) than at the end of your life when your options are fewer. Unfortunately, recent surveys suggest that 57 percent of Americans feel they are behind on their retirement savings. But it’s never too late to turn that ship around.

1. Learn to delay gratification. Almost any budget has room to trim expenses. Are you paying for a convenient but unnecessary data plan on your smartphone? Getting your money’s worth from your gym membership? Spending a lot on books and music downloads instead of borrowing from the library? All of that adds up to a lot of money spent in the long run — you have to decide whether it’s all worth it.
2. Start small but start early. The younger you are when you open your first retirement account, the better off you’ll be. If you start your retirement fund when you’re 25, your contributions have a full 40 years to grow. If you put $100 into your account every week, with a modest 6 percent return in the stock market you’ll end up with about $867,000 at retirement. Not bad, considering you’ll only have deposited $208,000 of your earnings.
3. Don’t count on a pension. Just because you’re a member of a public employee union doesn’t mean you don’t have to save for retirement. Data published by Barron’s show that eight states have enough money to cover only two-thirds of their pension liabilities, and thirteen more are only 80 percent funded. That means millions of Americans will not receive what their unions have promised them. Even non-unionized companies have bankrupted their pension plans in the unstable economy. Take responsibility for your own future and open an IRA right away.
4. Increase saving by 1 percent. It isn’t such a big increase that your monthly budget will be significantly affected, but over time the magic of compound interest will make your savings grow noticeably faster.
5. Play catch up. Even if you’re no spring chicken, you still have time to grow a decent nest egg. Experts suggest a baseline savings rate of 6 percent of your gross salary — and build from there as soon as you are able. And once you’re over age 50, the IRS raises your 401(k) and IRA contribution limits, so you can save even more tax-free.

But if you’re saddled with a huge car payment, struggling to pay your rent or mortgage, or throwing money away on high-interest debt, then those savings don’t seem to matter as much to your bottom line.

In other words, if you can’t make ends meet month after month, clipping coupons isn’t going to be enough to bridge that gap.

The solution? Find ways to slash your biggest expenses first — before cutting back on smaller budgetary line items. Here are a few tips to get you started:

• Maximize your tax deductions throughout the year to avoid scrambling to remember them all when it’s time to file your annual return. Keep files on all your charitable donations, deductible interest on student loans, medical care, and other qualifying expenses.
• Aim to spend no more than 30 percent of your income on housing, whether that’s rent or mortgage (and don’t forget to factor in property tax and insurance). If you can spend less on housing and still live in a safe area, do it.
• A rule of thumb: If you have to take out a car loan you can’t pay back in under three years, you can’t afford your ride.
• Most savings accounts right now are paying around 1 percent APR in interest. If you have credit card balances or student loans to pay off, you’re likely paying more than 1 percent on that debt, so your emergency fund is actually costing you money in the long run. Make a dent in it today.

Forget fine-tuning — overhaul your budget to see the biggest savings.

This week we’re covering a happier topic: how the same principle can help you build serious wealth for the long haul.

You already know it’s important to save for retirement. But if you are going to do it right, you need to remember two key points:

• Start saving as soon as you can: compound interest can make anyone rich, given enough time.
• Investment fees are not your friend: Even small ones will cost you big bucks down the line.

Let’s assume you plan to retire at age 65. If you start your retirement fund when you’re 25, your contributions have a full 40 years to grow. If you put $100 into your account every week, with a modest 6% return you’ll end up with about $867,000. Not bad, considering you’ll only have actually deposited $208,000.

But if you start at age 35, it’s very hard to catch up. Even if you deposit the same amount of money (by increasing your weekly contribution to $133) you’ll end up with only $583,260. Think about that: In both scenarios you put away the same amount of money, but delaying 10 years will cost you $300,000.

Now that you know when to start investing, how about where?

If you’re like most investors, you’ll end up with a managed fund, probably a mix of stocks and bonds. The most important criterion for choosing a fund is not its past performance. If you want to maximize your long-term returns (and who doesn’t?), pick a fund with low fees. Otherwise, your returns are going to pay for a money manager’s house in the Hamptons, instead of your own retirement.

For example, Vanguard is one of the biggest investment groups in the world, with over $1 trillion in managed assets. They also offer some of the lowest fees around. According to their website, Vanguard charges an average fee of 0.2%, compared to an industry average of 1.2%.

Now 1% may not seem like much, but remember, little differences add up over time. If you have $100,000 in your retirement account, that 1% is a thousand dollars – every year. In the example above, saving $100/week for 40 years will give you $867,000 (assuming a 6% return). But if you were paying 1.2% fees the whole time, your effective rate would only be 4.8%. Because of the magnifying effect of compound interest, that little fee would cost you a whopping $230,000.

Remember, no matter how old you are, the best time to save for retirement is right now. Check out Bankrate.com’s handy calculators to see how your money can work for you.

Sad as Money’s demise is, there’s a wealth of free online tools to track everything from your credit score to your net worth. Here are a few of the better options:

• Mint.com is the grandaddy of online budgeters. Functioning like a web-based version of Money or Quicken, it can track every retirement, credit, and savings account with your name on it. While wary consumers are wise to think before they Mint, the website has taken many steps to safeguard your financial information, and was recently purchased by Intuit, the maker of Quicken.
• Similar to Mint, Thrive is an online money-management program with a neat feature that shows you how long you’ll have to save up to get that new smart phone or down payment.
• Curious what your all-important credit score is but hate paying the fee to check it? CreditKarma.com will give you a free score like magic.
• ESPlanner.com offers a free basic version of its retirement-planning software online. It doesn’t have all the bells and whistles of the original, but it doesn’t cost $149 either.
• The Financial Planning Toolkit offers free advice to help you navigate the tricky world of making an estate plan or will — a critical document if you have people who depend on you.

Of course, if you don’t mind paying for a more full-featured solution, Quicken 2010 is always an option. It will import your existing Money files and has more features than most web-based products, particularly for rental property and small business owners.