Get Smart About Savings In 2005

ROCKY HILL — Is this the year you make good on your promise to boost the amount of money you save? There are plenty of ways to achieve this goal, but the key is to establish a savings plan and stay committed to it. Here are some simple savings strategies recommended by the Connecticut Society of Certified Public Accountants (CPAs).

Establish a goal. The key to saving is to have a goal. Whether it is a comfortable retirement, your child’s college education, or a new car, when striving toward something specific, you are more likely to reach your target. Be sure to set a dollar amount and a time frame and stick to it.

Spend less. Systematically reducing your spending will increase the amount you have available to save. If you do not know where your money goes, tracking spending can help. Then look for ways to cut back and free up extra money for savings.

Pay yourself first. People have a tendency to pay all their bills first and save whatever is left over. The trouble is there is seldom anything remaining. Next month, before you pay the electric bill, buy a new outfit, or enjoy dinner at your favorite restaurant, “pay” a predetermined amount to your savings account.

Make it automatic. A good way to put saving first is to arrange for your employer to automatically deduct a certain sum from your paycheck and deposit it directly to a savings or investment account. Another option is to establish an account with a mutual fund and arrange for an automatic transfer from your checking or savings account into the fund. The adage “what you don’t see, you can’t spend” works well.

Bank your raise. Next time you get a raise, before you get used to living on a higher salary, put in place a plan for directing the extra money to your savings program. Follow the same strategy for any bonuses you receive from your employer.

Keep making payments. When you finish paying off a large loan or a major expense, such as a car or your child’s college tuition bill, keep making the payments — only now direct them to your savings or investment account.

Bank your refund. If you are expecting a refund check from the IRS, avoid the temptation to spend it by having it deposited directly to your savings account. Better yet, adjust your W-4 statement so you do not get a big tax refund. Save the “raise” in your paycheck via an automatic saving plan.

Bank “extra” paychecks. Depending on whether you get paid weekly or biweekly, you probably set up your budget based on getting two or four paychecks a month. Several times a year, when there is an extra paycheck in the month, direct the entire check to your savings account.

Contribute the maximum to your 401(k). If you participate in an employer-sponsored retirement plan, try increasing your contribution by one or two percent. You probably will not miss the money and if your contribution qualifies for an employer match, you will be getting more “free” money. If your company does not offer a qualified retirement plan, set up and contribute to an IRA instead.

Deposit found money. Whether it is a birthday gift of cash, a dividend check, or an insurance reimbursement, banking unexpected windfalls builds your savings account balance.

Pay yourself back. If you are forced to dip into your savings for an emergency, treat it as a loan. Set up a repayment schedule for paying the borrowed sum back as quickly as possible.

Work with a financial professional. A CPA can provide you with expert advice on saving more money and planning your financial future.