Money Market Accounts Can Help Improve Savings Rate

Use a Money Market Account to Start Changing Your Savings Habits

A recent MoneyRates poll, conducted in conjunction with the personal finance Web site GetRichSlowly.org, showed that over half the respondents believe that they are not on track with saving for retirement.

Who is to blame for this problem? Well, you could round up the usual suspects:

• The bear market in stocks has slashed the value of of retirement funds.
• The weak job market has made it tough to save money.

The truth is, though, that while this has been a dud of a decade for stocks, it follows the extraordinarily strong decade of the 1990s, so retirement accounts should have built up something of a cushion. As for the poor job market, the fact is that the average personal savings rate fell to almost nothing well before the recession hit.

For all the challenges outside conditions might pose, the lack of progress toward retirement savings comes down to one simple fact: people need to save more money. To do this, they need to change their habits.

Using a Money Market Account to Change Savings Habits

People don't like letting go of their money, and oddly enough, putting money aside for retirement feels more like letting go than spending it. After all, there is no immediate reward--you simply transfer the money out of your checking account, and then you don't see it for years to come.

If you have a hard time making this kind of long-term commitment, a money market account could be a good place to start improving your savings habits. Think of it as a gentler way of taking the plunge: money market rates may not be quite as high as savings account rates, but money market accounts allow you more frequent access to your money. So if you are testing out a new habit of saving but are afraid you may have to pull some money back out to meet unexpected expenses, a money market account would be just the ticket.

Once you settle into your savings habits and see the balance in your money market account start to accumulate, you can transfer some of those funds into more permanent savings vehicles, such as a savings account or investments. The most important thing, though, is to get started.

Getting Started: Some Saving Tips

Besides opening a money market account, how else can you get started with your retirement savings? Here are some other preliminary steps:

• Target your least satisfying spending habits. While there are some purchases you really care about, chances are there are other expenditures you could do without. If you shoot for eliminating the least satisfying purchases first, starting to save will be less painful.
• Review every service provider to find better deals. If you go through every bill you pay regularly--insurance, telephone, cable, etc., and compare prices of alternatives, you could find ways to meaningfully reduce some of these bills.
• Make your savings stick. When you've figured out how to save money on the above items, make this amount your initial savings goal, so you don't simply turn around and spend the savings on something else.

Eventually, you will need a more robust savings plan, but if your problem is getting started, these initial steps will help you take the plunge gently.

Source:

Laura Rowley • Seven Daily Routines That Can Cost You Big • Oct 15, 2009 • Yahoo Finance: http://finance.yahoo.com/expert/article/moneyhappy/196161

US Bureau of economic analysis: http://www.bea.gov/briefrm/saving.htm