Financial Literacy - Families and Finance
smart spending
Savings strategies for different goals

The economy may be slowly limping back to life, but many American families still find it difficult to sock money away for traditional middle-class trappings like a new car, college or retirement.

Belt-tightening is always a good way to save money, but you can only take it so far because when you're raising a family, reasons to spend pop up like weeds. And they come in many varieties, such as car repairs, unreimbursed medical bills and unexpected household repairs, to name a few.

U.S. households saved 5.7 percent of disposable income in April 2009 -- a lot better than 0.4 percent in 2005, but way off highs of more than 10 percent during the mid-1970s.

But the national savings rate isn't as important as your personal savings rate. Elizabeth Warren and daughter Amelia Warren Tyagi, co-authors of "All Your Worth: The Ultimate Lifetime Money Plan," advocate this financial formula for success: Spend 50 percent of your paycheck on the "must-haves," 30 percent on "wants," and use the remaining 20 percent to service debt and save money.

"We've grown so accustomed to spending money that it really is time to take a second look at our budgets and start pulling in the reins a little bit," says Certified Financial Planner Kelly Campbell, principal at Campbell Wealth Management in Fairfax, Va.

"What we'll find out is that a lot of people are able to save a lot more money than they ever thought."

So how do you squeeze more money out of an already squeezed family budget? It's a matter of determination and discipline.

How to save for different goals
  1. Set up an emergency fund
  2. Save for short-term goals
  3. Establish mid-term goals
  4. Don't overlook long-term goals

1. Set up an emergency fund

Most financial experts recommend that you set aside an emergency fund of three months' to six months' worth of living expenses before you start saving for other goals.

While this money technically does not go toward any of your short-, medium- or long-term savings goals, it does act as a deterrent to tapping such important accounts as a 401(k) if you lose your job.

The money also helps prevent your family from getting into deep credit card debt.

If both spouses are working and jobs are secure, you could adjust how much you save for emergencies. But you'll need to carefully assess your situation.

The amount you need to save "depends on how long you expect to be looking for work," says Certified Financial Planner Judith Ward, senior financial planner with T. Rowe Price in Owings Mills, Md.

"Households with just one worker or folks who earn commission may want a little more just because of that uncertainty."

Bankrate's work sheet can help you determine how much you need to save in an emergency fund.

Ward also suggests tracking family expenses by adopting a household budget for the best chance of success in meeting your savings goals.

2. Save for short-term goals

Once you have an emergency fund set up, consider setting up your priorities into three timeframes or "savings buckets" -- for short-, medium- and long-term goals.

Say you want to go on a family vacation in two years or buy a car next year. Both would be considered short-term goals, so investments kept in these buckets should be liquid, meaning you should have no trouble withdrawing the money when you need it.

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