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Building Savings Rates, Keeping Score: The Savings Game

May 23, 2010

| MoneyRates.com Senior Financial Analyst, CFA

What if saving money were a game?

It's not, of course: building up your savings is serious stuff. A strong discipline to save is vital to getting or staying out of debt, financing your retirement, and paying off a mortgage. But adding some fun--even a bit of self-competition--can provide a boost in motivation.

Here at MoneyRates.com, we've pulled together a list of key actions and accomplishments that underpin a strong savings ethic. Each of these actions can win or lose you points over time. We're calling it the Savings Game.

Take your financial history and go through the list. Tally up your scores to date, and then keep updating that score every time you take a relevant action or when one of the events listed takes place.

The Savings Game lasts a lifetime. The object isn't any one particular score, but to keep adding to your score all the time. If you keep moving forward on this scoreboard, chances are you'll also be a financial winner in real life.

Scoring Savings Action Why This Is Important
Positive Savings Actions
+3 Get your first job
Your income sets your limits for living expenses and savings. (+1 extra credit if you got your first job before age 20)
+2 Make a budget
Draw up a detailed plan for living within your means. (+1 extra for each year you have lived within a budget)
+3 Start saving
Plan a target amount or percentage of your income that you put aside for long-term savings.
+2 Compare bank rates and open a savings account
You'll need to do something safe with those savings, so shop online for competitive bank rates and open an account.
+1 Accumulate an emergency fund
Experts generally recommend having 3 to 6 months' worth of expenses set aside. (+2 extra for having a 6-month fund or more)
+1 Increase your savings rates Your goal should be to increase savings rates as your income rises. (Give yourself a point for every year your savings rate increases from the previous year.)
+3 Accumulate a 10% down payment for a home purchase
Putting down 10% or more when you buy a home will help you get lower mortgage rates and start home ownership with a larger buffer of home equity. (+3 extra for a 20% down payment)
+1 Contribute 7.5% of income to your retirement fund According to the Employee Benefit Research Institute, the average contribution tends to be around 7.5% of earnings. (+2 extra if you put aside 10% of your income, and +5 extra if you reach 15%)
+10 Create a financial plan to meet expenses in retirement
As you look toward retirement, create a realistic plan for meeting ongoing expenses from your savings. Remember, your lifespan might be longer than you think!
Negative Savings Actions
-2 Quitting a job without a backup plan
You may have an emergency fund, but quitting a job with no plan for how you'll replace the income is going to be a hit to your savings account--and possibly your credit.
-2 Exceeding your budget over the course of a year Blowing your annual budget limit takes you off-track. The more you do this, the harder it may be to catch up later. (Subtract 2 points for each year this happens.)
-1 Rolling over a credit card balance   Credit card rates can be high, so a scrupulous saver should be careful to avoid finance charges. (Subtract 1 point for every month you fail to pay off all credit card balances in full)
-5 Being late on a debt payment
Ouch! Being late on debt payments--including credit card payments, car loan payments, and your mortgage--often triggers higher fees and interest rates and may damage your credit history. (Subtract 5 each time this happens)
-1 Failing to save for retirement after age 30
Compound interest and a long investment time horizon is the secret sauce to building a nest egg. Take off a point for every year you don't save for retirement. (-2 extra each year once you reach age 40, and -5 extra each year once you reach age 50)
-5 Retiring without crunching the numbers
You may think you have a healthy sum of money saved up, but don't retire without having figured out how you will make your money last through retirement.



Ready to try the Savings Game? Figure out your score and post the results in the comments section of this blog. Good or bad, everyone has a financial history that can be an example for others.

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