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Plan Well, Retire Well

Saving and investing your money

Save for Your Dreams

Do you have a dream? Does it require money to accomplish? Many of our dreams do. The challenge is to change our financial behaviors so that we can save money to reach our dreams. The economy for the last several years has stifled our dreaming, but this is your wake-up call – time is passing and now is the time to put your dream into action.

I'm not saying that it's easy to save money. However, you can start. And once you start, little by little your savings will grow. Don't let the start be what stops you!

Do you have a savings account? If not, that's a good place to start; open a savings account with low monthly fees. Almost a third of Americans don't have a savings account, according to a recent report by the Corporation for Enterprise Development. Research in behavioral economics shows that people find it helpful to categorize money, for example, money in a checking account is for spending and money is a savings account needs to stay there.

Save enough money in a savings account (or another type of account) to cover any unexpected expenses including job loss. Without money set aside, people tend to use credit cards to cover unexpected expenses and, with interest charges, that is an expensive way to manage money. The report by the Corporation for Enterprise Development found that nearly 44 percent of Americans don't have enough savings or other liquid assets to stay out of poverty for more than three months if they lose their income.

Three months of money saved for essential expenses is a lot of money and may seem unachievable. If so, start saving a small amount. Once we begin practicing a habit, it can become a habit and then it's easier to do more over time.

And time is the issue. You want your money to work for you. When you have money in a savings account, you will earn interest (although it is a low percent currently). But it's more than you'd receive if the money was under your bed, and safer too. Over time, interest can add up and this is your money working for you – even on weekends and holidays!

When you have enough money in a savings account to cover emergencies, then you can think about taking the next step and investing your money. Investing money does involve risk. Money invested can be lost but money invested also can have gains much higher than savings account rates of return.

The Dow Jones Average is now at a five-year high. Since the low the point in the Great Recession (March 2009) the Dow Jones Average is up 92%. This is good news for investors who stayed in the market. Unfortunately many individual investors may not have benefited fully from this increase in value as they chose to leave the stock market or reduce the percent of their portfolio invested in stocks.

Do you have money working for you? If not, consider investing your money in a diversified mix of investment types. Many employers offer tax-deferred retirement savings plans to employees. Employees can choose to have money deducted regularly from their paychecks and then invested through these retirement plans. Not only is this convenient, because the investment happens automatically every month, people are often pleasantly surprised how much it adds up over time. If this sounds like a good fit for you, check with your workplace to find out what automatic saving and investing options you have.

If you are already investing through a workplace plan, take a close look at your investment statement. Many of us stopped looking closely at our statements when the stock market was going down. Look at your portfolio allocation -- how much you have in stocks, bonds, or other investment options. Are you comfortable with the allocation or is it time to make some changes?

Saving for our dreams is possible one step at a time. Now is the time to take the first step.

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