MARQUETTE - With the new year arrived, a common resolution for many people is to try to put away more money than they did last year, despite the current tough economic climate.
During the 1970s and 1980s, the rate Americans saved money was estimated to be between 5 and 7 percent of gross income. In the decades since, that percentage has dropped to between 1 and 3 percent, according to a local credit counselor.
With increasing expenses and stalled or reduced income many people are finding it difficult to find room in their budgets for savings. However, savings is one of the most critical expenses you can have, said Stuart Baker, a financial counselor with GreenPath Debt Solutions, a non-profit credit counseling agency in Marquette.
"People really need to pay themselves first. That means saving a portion of your income before paying any other bills," Baker said. "Having a savings account gives you the freedom of not having to worry about unexpected expenses."
Experts suggest establishing a budget based on only 90 percent of your take home pay.
"That way you'll have 10 percent to put aside for those life events that always seem to pop up at the worst possible time," Baker said.
So how do you go about saving? Baker suggested there are several ways to do it.
His first suggestion is to set aside a small amount from each paycheck.
"It is always easier to save smaller amounts more frequently than large amounts once or twice a year," Baker said.
Second, Baker said a tax refund can be a good way to start a savings account.
"Try to save half your tax refund to get you started. Then consider increasing your exemptions to get more take home pay and save that increase through an automatic payroll deduction," Baker said.
Baker said financial experts vary on the proper amount needed to have in your savings but the general consensus is that you should have either two to three months of your take home pay, or six months of your basic living expenses.
"You cannot imagine the peace of mind you can get from having enough money in savings to overcome any unexpected expense," Baker said. "While that amount of savings can be a large number, you cannot reach that all at once."
Baker encouraged people to start small and not get discouraged.
"After all, Rome wasn't built in a day and neither is a large savings account," Baker said.
But Baker concedes that while this may sound easy, setting aside money for savings may not always be so easy in practice.
So how do you start savings if you're living paycheck-to-paycheck and it doesn't seem there's any room for save?
Baker suggested completing a review of your spending.
"Before you can begin to make cuts in your expenses to be able to save, you need to know where every penny goes each month," he said. "Invariably what you'll find is something you don't like and that will be the first place you'll try to make changes."
Trying to save more money this year in a tough economy is a good resolution to have. Using some of the tips Baker has suggested may be able to help set you on your way to truly a happy and prosperous new year.
John Pepin can be reached at 906-228-2500, ext. 206.