"He who fails to plan, plans to fail," says an oft-quoted proverb. Failing to plan for your financial future and security can have severe consequences, but this doesn’t have to happen. Start now!
Making the decision to save money and build a nest egg is one thing, and likely something many do or make an effort to do, and yet for an infinite number of reasons may wind up deferring. If the lingering economic downturn in the global economy is any indicator, any attempt to build or increase your savings will prove very challenging for most people particularly for African-Americans.
A recent survey by Ariel Investments reports that African American households are struggling to save money. The survey indicates that these households now reflect a median monthly savings of $189, compared with $367 among white households. The 2010 findings mark the first time, in a decade, that African American households have reported saving less than $200 per month. While saving in such an environment has affected all Americans, these numbers underscore the immense and staggering effect the recession has had on African-Americans.
A 2009 federal survey of household finances revealed that minorities, overall, are saving substantially less than whites. The median value of holdings in a transaction account — which includes checking, savings and money market deposit accounts — was about $5,100 for whites and $2,000 for minorities. About 96 percent of whites had a checking account, compared with 84 percent of minorities. And only 8 percent of minorities had certificates of deposit (CDs), compared with 19 percent of whites.
Undoubtedly, in an attempt to cope with the effects of the economic downturn, minorities have been forced to make increasingly difficult decisions — decisions that can, and have, had serious long-term consequences.
In the context of your overall money management plan, a few basic steps can get you on the right track to planning and saving toward financial security.
1) Pay Yourself First
First, it’s essential for you to think of saving money the same way you think of paying a bill — a bill that has priority over all the others. Pay it every month. The only difference is that you're sending the check to yourself. Pay yourself first before you pay anything or anyone else and not what’s left over after you have paid everyone else.
Set short- and long-term savings goals. Let’s say you want to save money for specific things. They may be short-term — such as fixing a broken muffler, buying a new washer and dryer, taking a vacation — or they may be long-term such as preparing for your retirement.
Save your money, in different account types, based on your short- or long-term goals.
For money you expect to need in the short term, you can choose among several savings vehicles — savings accounts, money market accounts, money market mutual funds and CDs.
Savings accounts. Several different kinds are available to you: A basic bank account with low interest; a high-yield savings account, which usually comes with some restrictions; and an online savings account. Look for competitive rates and make sure that the bank is insured by the Federal Deposit Insurance Corp. (FDIC).
Money market accounts. These may provide higher interest rates than a savings account but have higher minimum balance requirements. There may be caps on check writing and withdrawals.