Six Year-End Diagnostic Questions for Building Money Market Accounts

Setting long-term savings goals is important, but don't just "set it and forget it." If you're trying to build money market accounts and other savings, you must regularly monitor progress toward those goals. That way, when savings rates get off track, you can take action promptly. Otherwise, your long-term goals could slip further and further out of sight.

The end of the year is always a good time to look back and review how you did in meeting your savings goals for the past year. If you find that your money market or other savings accounts have not grown as much as you expected, there can be several possible culprits--income, spending, your savings rate (i.e., the percentage of income you sock away), your money market account rate, or any combination of these factors.

Diagnosing Low Money Market Balances

The following questions will help you put a finger on what exactly went wrong if you did not meet your savings goal over the past year:

1. Did your income meet your expectations in 2009? The lingering recession and a weak job market meant many households lost one or even two jobs, saw their work hours cut, or accepted low-pay positions for which they were overqualified. If any of these was the case with you or your family, look at the strengthening economy expected in 2010 as an opportunity to start building up your income again by finding work, asking for more hours, or seeking an upgrade in position.
2. How did your savings rate this year compare to last year's? If the dollar value of your savings came up short in 2009, compare your savings rates between last year and this year. A personal savings rate is the amount saved as a percentage of your after-tax income. You may not have been able to avoid a slip in income, but you should strive to keep your savings rates stable or growing over time.
3. Do you have a budget built around a savings rate that will meet your goal? Setting a savings target is no good unless you have a monthly budget that will allow you to meet that target. If you didn't have a specific spending plan in 2009 but instead a vague aspiration to save, that might be one reason your savings came up short.
4. Did spending exceed your budget in 2009? If you did have a spending plan, were you able to stick to this budget last year? If not, you need to take a closer look at where you can cut spending in the year ahead.
5. How did you spend any lump-sum or unexpected income? Every now and then, people get a windfall--a bonus, a gift, or some other unexpected source of money. It's all too easy to celebrate by spending that windfall. However, if you split unexpected income between savings and a little celebratory spending, it will make your savings goal easier to meet. Be sure to figure in the tax consequences of this unexpected income before you decide how to spend or save it.
6. Did your money market rates come up short? Money market rates were low in 2009, so maybe you didn't earn as much interest as you expected. You can't change the market as a whole, but you can get the best rate you possibly can in this environment by comparing bank deals on Money-Rates.com.

Perhaps the most important thing about this kind of year-end savings review is to apply the lessons learned to make the year ahead a more successful one for meeting your savings goals.

Source:

Christine Laue • Get a handle on budget • Nov 14, 2009 • Omaha World Herald: http://www.omaha.com/article/20091114/MONEY/711149906