Once you've gotten to the point where you've contained wasteful spending, it's time to focus on savings strategies.
One approach is to set up investment baskets for short-term,
intermediate and long-term goals. For the first two baskets, divert a portion
of your paycheck straight into a bank and brokerage account before you can
touch the money. For the long-term basket, contribute to your company's
retirement plan or your own IRA.
Your short-term basket should serve as a six-month
cash cushion that you can draw on in the event of an emergency or unexpected
"It can be a savings account or money market account, and the yield is the least concern with that short-term money," says financial adviser Steve Pomeranz, CFP, host of National Public Radio's "On the Money!"
"It's about protection of capital and liquidity."
Money for large purchases such as homes, vacations or a new car should be drawn from an intermediate savings basket composed of CDs and other intermediate-term savings instruments that can grow for periods of six months to several years, Pomeranz says.
A good strategy is to use the CD laddering technique. It works by maintaining a pipeline of CDs that mature at different intervals.
"The idea is to make sure the money is not completely accessible to you," says Gary Foreman, publisher of Stretcher.com.
To learn more about the advantages of CD laddering, use Bankrate's CD ladder calculator.
Finally, your last basket is for long-term goals such
Whether you invest in an IRA or a 401(k) account, you'll have access to
stock and bond funds, as well as funds that contain both asset
"By segregating these baskets, you don't have to worry
so much if the market is going down because you know that the cycle is going
to play out in X number of years. And if you manage your money appropriately
during the tough times, you have a very good chance of making a decent return,"