While retailers use the holiday season to urge people to spend, local financial and accounting advisers say it’s wise not to wait for a rainy day to save for a rainy day.
According to the U.S. Bureau of Economic Analysis, the U.S. personal savings rate for October 2013 was 4.8 percent, a decline from the prior month’s 5.2 percent. The savings rate looks at personal income saved compared to personal net disposable income.
Janet Coventry, president of Plan B Tax and Accounting in Madison Heights, said she sees her clients saving money — but more for big purchases like furniture as an alternative to putting it on a credit card.
“I don’t really see people saving money for long-term,” Coventry said.
Coventry said she tells people to put their money into a 401(k) program sponsored by their employer. Investors should maximize their contributions to the extent that the employer will match them, she said.
In general, people should set aside and invest at least 5 percent of their income, and saving 15 percent is optimal, she said. When it comes to risk, people should talk to a qualified financial consultant for guidance.
“It depends on how old they are, how much risk they want to be included,” Coventry said. “If they’re in their 20s and 30s, they can afford to have a lot of risk.”
However, she did not recommend that people keep their stash of savings in a bank, since they nowadays are giving practically no interest.
“You’re not even getting 1 percent,” she said.
LauRyn Williams, financial adviser at Waddell & Reed in Bloomfield Hills, said her clients are conscious of the need to invest in a 401(k) because they’ve heard stories of pension plans not being as solid as once thought.
“When it comes to nonretirement savings, though, my clients still struggle to actively plan in any,” she said. “They don’t feel they can afford it.”
Besides investing for retirement, Williams recommended setting aside a fund amounting to three to six months of living expenses for things like hardships, special purchases or vacations. She said that fund should be accessible.
“For families of four, I recommend the six month. For individuals and (for) couples, I recommend the three months,” she said.
Williams said this fund serves as a shield to prevent families from racking up credit card debt. She also suggested that people actively save and not put all that money into paying down old debt, if their financial situation allows.
“You should not pay down the debt at the risk of not having cash on hand,” she said.
Plan B Tax and Accounting in Madison Heights can be found at www.planbtaxandaccounting.com or by calling (248) 419-2550. Learn more about Waddell & Reed in Bloomfield Hills at www.waddell.com or call (248) 220-1650.
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