PIC Current

by Mike Lazear, PIC Current Assistant Producer

It’s difficult to ignore the reality of today’s financial situation. The markets are not doing well. After the housing market was affected, banks, loans, and even jobs were hit hard.

And now we are all asking ourselves “when will it get better?” Well, one day things will turn around. History has shown us that. But for now it is very important that we know how to best manage our financial situation so  we are prepared.

First, we must work on effectively putting our hard-earned money away. Saving is a skill that must be learned. It does not come naturally to everyone, so don’t feel bad if you have been struggling to put money away!

The next step in financial health is learning the ability to manage our debt effectively. It is also important to know the difference between “good” debt and “bad debt” and when it is ok to take on some debt. We are a nation that is in so much debt that it is hard to know whether all this debt has become a necessary evil.

Finally, once we have mastered the ability to put money away and manage our liabilities, we can begin drawing up a budget and planning for the future. What do you want out of life? What is your picture of ideal financial health? How can you plan a budget so that you can reach your goals?  These are essential questions to ask.

This three-part series will help you get there.

Part 1 – Saving – Monday, October 13th

Part 2 – Managing Debt – Tuesday, October 14th

Part 3 – Planning your Financial Future – Wednesday, October 15th

The Art of Saving

We all have different incomes and different earning power. You may be making $100,000 a year or more, or you might be getting by on $9 an hour. Neither situation automatically makes saving less necessary.  On the surface, it’s certainly is easier to put money away if you are making more, although this is not the whole story.

If you have payments on a house, car, childcare and other things, it’s quite possible for you to have a high salary and still barely get by.  This is a more common phenomenon than one would think.  It’s why the middle class is getting squeezed.

On the other hand, you might not be earning much at all, but because you have very few expenses, you are able to put more money away than the person in the above description. In this way, you are saving more, even though your earning potential is less.

The difference between earning potential and saving potential is an important one. It is, of course, better to have a lot of saving potential AND a lot of earning potential. But this is not always possible. With that in mind, it is important to learn how to save effectively, no matter what your salary is.

Here are some useful links that have great advice on how to learn to make wise saving decisions:

Wikihow – A useful guide on how to set savings goals and establish a realistic timeframe

Money Saving Guide – A great site with a lot of useful tips and tricks on how to save in your daily life

About: Financial Plan – Here are some interesting ways to save money if you are a homeowner

Our Family Place – A good little guide on how to come up with a budget, distinguish between wants and needs, and how to plan for the future

Money Crashers – A blog with a lot of great tips on how to be “financially fit”

Different Types of Accounts

If you are going to get serious about saving, it is important to understand your options. There are many, many different types of accounts where you can put some or all of your earnings. Some are riskier. Some are more profitable. Almost all of them are better investing options than simply leaving extra cash sitting in your checking account where it cannot earn any interest.

Here are a few examples of different types of accounts and the various pros and cons of each.

• Simple Savings Account – This is the kind of account that your local bank offers with a pretty low interest rate. Still, there are rarely any fees involved and it has the added advantage of being  with the bank you are most comfortable with. You can transfer funds in and out of this type of account without much hassle. These funds are also quickly available to you. It isn’t quite as handy as a checking account, but it’s close.

Wells Fargo – This page will take you to Wells Fargo’s savings account options once you select your state

Washington Mutual – Personal savings account options from Washington Mutual

• High-Yield Savings Account – A high-yield account functions in a similar manner to a regular savings account, except the interest rates are usually much higher. Meaning, you make more money. A high-yield account has the advantage of giving a great interest rate without making it too hard to withdraw your money. Some of the best high-yield accounts are available online and are easy to access and very secure.

Get Rich Slowly – A nice list of online high-yield savings accounts

FBNO – FBNO Direct high-yield savings account

HSBC – HSBC Direct online savings account

• Roth IRA – A Roth can give a great interest rate (higher than any high yield account) and is fairly reliable. In the long run, there really is not too much risk here. The only thing to be aware of is that you will not be able to make withdrawals for quite some time without giving up your earnings. Usually, this type of savings account is for retirement.  One fact to note: money now invested in Roth IRAs are probably experiencing quite a loss because they are market-based.

The IRS Site – The IRS guide to Roth IRAs

Fool Personal Finance – Great answers to all your questions related to Roth IRAs

• Money Market Account – This is quite similar to a checking account, but usually requires some kind of monthly or yearly service fee to maintain. Additionally, you usually have to maintain a minimum balance. A money market account has the bonus of allowing you a certain number of access checks that you can use to make large payments immediately.  This is certainly a good choice for many different situations, and many people have large amounts of their earnings invested in a Money Market account. However, just like Roth IRAs, they are not without risk.

New York Times – New York Times article on the current state of money market accounts

Investopedia – Money Market Account definition at Investopedia

Bankaholic – List of available money-market accounts and rates in a nice chart

Tomorrow: Learn to manage your debt effectively in part 2 of our series!

What is this?