Personal savings help prepare for emergencies, other needs

This week is America Saves Week, to focus on the importance for consumers saving part of their income. Whether saving to repay debt, to be prepared for emergencies, for home ownership, education or retirement, those families that have a plan are more likely to be able to save.

In the past three years consumers have sometimes spent all they earned and then some. The only other years when the savings rate has been negative were 1932 and 1933 when the nation was struggling with the Great Depression. During the l980s the personal saving rate in the United States averaged 9 percent, meaning that Americans spent 91 cents of every after-tax dollar they earned, which left a 9 cent surplus for savings or investment.

During the 1990s, Americans spent about 95 cents per dollar earned, with a 5 percent savings rate. By 2004, the annual savings rate was 1.8 percent.

Having an emergency savings fund can eliminate the need to borrow or run up a credit card bill when unexpected expenses occur.

The America Saves Web site at www.americasaves.org provides the following information.

* According to a recent survey, the typical amount Americans spent last year on unexpected expenses was $2000. Two-thirds of the expenditures were for medical care or motor vehicle expenses.

* A credit card balance can be very difficult to pay off if only minimum payments are made. For a person with a $1,000 credit card balance making monthly payments of 2Percent of the balance and with a 24 percent penalty interest rate, the balance can never be paid. All payments will pay off only interest owed.

* Typically, for families with the same incomes, those families with a plan save about twice as much as those who do not have a savings plan.

* An employer's match to a contributory workplace retirement plan such as a 401(k) can be a good way to save. Some employers, up to a certain level, will match each employee dollar contributed, thus guaranteeing at least a 100 percent yield on this savings.

* Assuming no other income, a male retiring at age 65 should have $620,000 saved to ensure an average income of $50,000 a year for life. For a female at age 65, she should have $665,000.

A small start to savings might be pocket change at the end of the day. The United States Treasury reports that Americans hold about $15 billion in loose change. Saving change can add to personal savings or be used to fund extra personal or family purchases.

Taxpayers now have a new tool to encourage saving and investments. This year, taxpayers due an income tax refund will be able to authorize dividing their refund into direct deposits for up to three financial institutions. The IRS form -- numbered 8888 and commonly called a split refund form -- makes saving simple. The automatic savings tool should help consumers avoid impulse spending at tax time. Dividing refund deposits between a checking, savings, and investment or retirement account may, for example, allow taxpayers to catch up on bills, treat the family to a night out, build an emergency savings and save for a long-term goal such as retirement.

Opting for the direct deposits also typically makes the refunds available in two weeks rather than the six or more weeks it can take to process a paper check.

An income tax refund may seem like free money to many, but it is a signal that a taxpayer has had too much income tax withheld from his or her paycheck and is providing an interest-free loan to the government.

Taxpayers due a significant refund are advised to check with their employer's human resources department to adjust withholding to better match typical tax liability. Adjusting the withholding amount will make more money available to the taxpayer during the year on paydays.

Having some money directed toward an automatic savings deposit each pay period will help to build an emergency fund and personal savings.

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Editor's Note: Ann Ludlum is a K-State Research and Extension family and consumer sciences and 4-H extension agent assigned to Bourbon County. She may be reached at (620) 223-3720.