When the Federal Reserve Board reported last year that 4 in 10 adults would have trouble covering an unexpected expense of $400, it raised questions about America’s savings habits — for both long-term retirement and more liquid emergency or rainy day funds.
This week AARP joins 1,500 other nonprofits, banks, credit unions and other institutions in an effort to improve the financial health of low- to moderate-income Americans by motivating them to save automatically for both scenarios.
“We recognized the importance of saving and getting into the savings habit — long term for retirement and short term for financial emergencies,” says David C. John, a senior strategic policy adviser at the AARP Public Policy Institute. “Individuals need to have both types of savings.”
During America Saves Week, the coalition suggests six ways to start saving more:
- Set up a plan. Those with a savings plan are twice as likely to be successful. Save a certain amount each month toward a specific goal, such as college tuition or a vacation.
- Make it automatic. Set up automatic transfers from your checking account into your savings account or have part of your paycheck automatically deposited into a savings account through your bank or credit union.
- Save for the unexpected. Establish a rainy day account for emergencies such as a car repair, a leaky roof or a busted boiler. Rather than turn to a credit card, use liquid savings when those expenses occur.
- Save to retire. If you are working but are not enrolled in an employer retirement plan automatically, ask a human resources representative how to deduct a certain amount from each paycheck and transfer it into a retirement or savings account.
- Save the extras, such as bonuses, raises and tax refunds. Earmark any tax refunds and any raises in pay or year-end and other bonuses for some type of savings account such as an interest-bearing account linked to your checking account.
- Save as a family. Demonstrate good financial habits for your children. Teach your children good savings habits by helping them to open their own savings accounts.