Like repentant sinners on a Sunday morning, U.S. households have straightened up their spending habits recently, returning to saving money after a prolonged spending spree. The question is, will this good behavior last?

To really gain control of your household finances and, especially, to start saving for retirement, you need to make saving money a long-term habit, not just a short-term correction of over-spending behavior. Because they require some length of commitment, certificates of deposit can be a good way to start a long-term savings pattern.

Binge Spending and Binge Savings

The personal savings rate in the U.S. shot up during the first quarter of 2009, reaching its highest level of this decade. It may seem counter-intuitive that people actually save more money during a recession, but this is part of a classic pattern. People overspend when times are good, and build up debt. They become more careful in a recession--or are forced to be more careful when credit is harder to come by--and start to pay down debt.

This increased savings rate actually concerns some government officials, because the effect of stimulus money is blunted if people are saving some of those dollars rather than spending them. However, paying down debt and building up savings will ultimately set the stage for a more sustainable recovery.

Unfortunately, though, for many people saving money will only be temporary. Just as they went on spending binges during good times, people tend to engage in binge savings when times are tough--emergency savings measures that are not likely to become permanent lifestyle habits. To escape this pattern, you would do better to develop solid savings habits you can live with.

Getting Into the Savings Habit

Here are some ideas for making saving money a long-term habit:

• Start with a budget. You'll see all kinds of ideas for saving money, from solid financial strategies to extreme gimmicks, but these won't become a sustainable habit unless you are working toward measurable goals. Start with your income and work backward from there--figure out a lifestyle that fits into that income, with room for savings. Don't consider savings to be what you do with "what's left over." Consider them a priority that has to be met each and every month.
• Avoid behaviors that lead you to break your budget. For some people, this may mean leaving the credit cards at home to avoid impulse purchases. For others, it means diverting savings into a special account as soon as possible, so that it doesn't become tempting to use accumulated cash to make a big purchase.
• Use certificates of deposit to lock in your savings. Speaking of moving savings into a special account, certificates of deposit are a great vehicle for this. CD rates may not seem very exciting right now, but CDs do force you to commit your money for a period of time, so they can help you start to make your savings more permanent. Plus, you'll find the highest CD rates as you start to commit for longer periods.

You can also make the best of CD rates by actively shopping around. You'll soon find little habits like that can make a real difference--if you keep them up over time.

Source:

http://www.bea.gov/briefrm/saving.htm