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Originally published Sunday, January 1, 2006 at 12:00 AM

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Taking the long view on savings

Save your money. Your parents and grandparents tried to teach you the concept when you were a kid. "Save Your Money" also is the slogan...

The Dallas Morning News

DALLAS — Save your money.

Your parents and grandparents tried to teach you the concept when you were a kid. "Save Your Money" also is the slogan that anchors the marketing campaign of ING DIRECT, an Internet bank that promotes no-hassle savings accounts and aims to bring consumers back to the old-fashioned concept of saving.

It's not a hard thing to understand. So why aren't more consumers doing it?

No doubt, some consumers literally live hand to mouth financially. Every penny goes to pay for living expenses, and there's nothing left to stash away.

But many others don't think enough about saving and aren't willing to slash unnecessary expenditures that could then translate into a fatter savings account.

The national savings rate has been negative for four months.

"Spending means gratification now; savings means gratification later," says Bryan Clintsman, a certified financial planner at Clintsman Financial Planning in Southlake, Texas.

Top savings mistakes

Spending: Not changing your spending habits.

Savings: Failing to funnel extra money to savings. With each raise you get at work and with each debt that you pay off, allocate a portion of that extra money to your savings.

401(k) Not taking advantage of your company's 401(k) plan, especially if your employer matches your contributions. Retirement accounts, such as 401(k)s and IRAs, offer tax-deferred growth, so your money grows faster.

Goals: Not setting a specific dollar target or financial goal.

Budgeting: Not knowing how much you have or where you are spending your money.

Sources: Dallas Morning News research; certified financial planner Bryan Clintsman; Employee Benefit Research Institute

"It really is as simple as the fact that we have become an impatient society that wants our meals cooked in a microwave, our money dispensed from an ATM machine and our messages sent by BlackBerry because e-mail is too slow."

Then again, if you have no idea of how much you'll need for your future, it's easier not too worry about it.

"More people would save for their financial goals if they simply knew how much was required," Clintsman says. "Since we don't often know the exact number that needs to be saved each month, we often claim blissful ignorance and don't save anything."

Take control

What most people don't realize is that they have more control than they think over their ability to save.

One of the main reasons that more consumers don't save is because they think they can't.

"I'm saying yes, you can, but I'm going against the grain," says Cynthia Nevels, executive director of the Jr. Finance Literacy Academy in Dallas, a financial-literacy program aimed at young people.

Too many people live in debt and worry about it later, she says.

"They say, 'I don't make enough to save.' It's this thing of 'I can't' vs. believing that there is a way of finding it."

For those who have been in the habit of spending, the roughest part may be that initial push-off.

"Very often, the hardest dollar to save is that first dollar," U.S. Sen. Charles Grassley, R-Iowa, said in a statement referring to congressional efforts on pension-funding reform. "Once people begin to save, it can become a habit that lasts a lifetime."

One of the best ways to save that first dollar is not to see it in the first place — so you don't miss it.

Consider having your bank automatically take out a fixed amount of money each month from your checking account to be stashed in a savings account.

"This will minimize the likelihood you forget to move the money yourself," Clintsman says.

Earmark your first savings dollars toward an emergency fund.

This type of account acts as your own "lender" in case you have a big bill one month, such as a car repair or medical expense, and it will keep you from putting anything on a credit card.

Ideally, you should have an emergency fund equivalent to four to six months of spending.

"Don't worry about trying to make a killing on this investment account," Clintsman says. "Emergency funds are designed to be safe, not sexy."

Don't be discouraged if you can save only a small amount.

Saving something is better than saving nothing.

"Even $50 or $100 per month is a great start, and almost everyone can do this," Clintsman says.

If you let it, the power of compound interest will turn your small monthly savings into a large stash over time.

Compound interest is the interest you earn on interest. For example, if you deposited $100 in a bank account at a 10 percent annual yield, you would earn $10 in interest the first year and $11 in the second year, for a balance of $121.

That extra $1, which you earned on the $10 interest from the first year, is the compound interest. Left alone, that initial $100 would grow to $1,744.94 after 30 years.

"It's not about denial today," says Jim Kelly, executive vice president of ING DIRECT.

"You don't have to save a lot of money today to have a lot of money in the future."

But to achieve that, you will have to change your behavior.

"If necessary, set a personal goal for yourself to give up one small thing to help contribute toward this goal," Clintsman says.

Nevels was reminded of the meaning of sacrifice when she was hit with a summer electric bill of nearly $500.

Nevels, a single mom, enlisted the help of her sons, Jeremy and Tyler Nelson, to chop down that bill.

"We turned the air conditioning off and opened the windows," she says. "I unplugged things we weren't using like stereos and the VCR that's blinking 12:00."

New options

Some banks and other financial institutions are trying to encourage savings in their own way, but you should approach those methods with caution.

They've created spend-to-save programs, which are rewards patterned after frequent-flier plans and are aimed at allaying consumers' fears about their bad saving habits.

New offerings include Bank of America's "Keep the Change" debit-card program, which rounds the price of a consumer's purchase up to the nearest dollar amount and transfers the extra money from your checking account to your savings account.

American Express has introduced a credit card called One from American Express.

Every purchase on the card will trigger a 1 percent deposit into a high-yield savings account.

The programs are creative, but "when push comes to shove, you have to assume that what they really want you to do is to use the credit card and not pay off the balance so they'll get interest income," says Dallas Salisbury, chief executive of the Employee Benefit Research Institute in Washington, D.C., which studies employee-benefits and savings issues.

Still, when it comes to nudging more consumers to save, "anything that does help on this stuff is great, but it's clearly a challenge," he says.

"We are urged each and every day to spend and borrow and live for the moment," Salisbury says. "Don't you know that you can't live without that 51-inch projection television? How can you conceivably drive a 15-year-old car?"

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