It is important when deciding how and where to invest your savings that you understand the options available to you. While the economy is constantly changing there are some low-risk investments that appeal to investors who are balancing their portfolio or simply unwilling to place money in higher risk vehicles.

I Bonds are basically savings bonds that are issued to consumers by the U.S. Treasury. Backed by the U.S. government, there is virtually no risk of default. The interest rate for the I Bond is adjusted by the changes in the inflation rate. I Bonds have a maturity of five years, however you are able to redeem them earlier than that (minimum twelve month holding period) if you are willing to forfeit the earned interest for the previous three months. After five years an I Bond can be redeemed without penalty and all interest earned is exempt from local and state income tax. Here we look at frequently asked questions regarding I Bonds.

Where can I purchase I Bonds?

I Bonds can be purchased electronically through the government website TreasuryDirect.gov or in person at most financial institutions. There is also an option online to convert existing paper savings bonds to electronic securities using the SmartExchange^sm program.

How much will it cost?

I Bonds are sold at face value which means if you want to invest $100 it will cost you $100. When purchasing online you must invest a minimum of $25. Purchased in person at a financial institution, I Bonds are available in the following denominations; $50, $75, $100, $200, $500, $1,000 and $5,000. The maximum amount of I Bonds that can be purchased in one year is $5,000.

What are the eligibility requirements to purchase I Bonds?

Unlike some other investment vehicles, there are no income restrictions or complicated exclusions with I Bonds. To buy an I Bond you must only be 18 years of age and have a valid social security number.

How are interest rates determined?

The interest rate for the I Bond is actually determined by combining two different rates; the fixed rate and inflation rate. The fixed rate is announced in May and November of each year and will apply to all bonds issued during that period. The fixed rate will remain the same for the life of the I Bond. Added to the fixed rate is the inflation rate which is based on the Consumer Price Index for all Urban Consumers. This rate is also announced each year in May and November.

As to whether or not an I Bond is a good investment, it all depends on what type of risk and return you are looking for when investing your money. The I Bond may not offer the biggest return, however if you are looking for a low risk investment that is fairly liquid, this is a good option to consider.

How much do you pay for cable television these days? If you’ve got a DVR and high definition stations, chances are you’re paying somewhere around $80 to $90 per month for your television portion of your cable bill (and more if you have high speed cable internet, too). This luxury item is running you $960 to $1080 each year. If your budget is getting a little tight, you might consider canceling the cable television bill and watching your shows through less expensive, or even free, means.

Movies

If you’re not attached to any particular television show and just like to watch movies or whatever catches your interest at the time, you could save money by borrowing movies from the library instead of paying for cable television. You can even get many television shows on DVD – typically at the end of each show season a DVD is released with all the episodes from that season.

For $9 per month, you can “watch instantly” as many movies from Netflix.com as you would like. You can watch them on your computer, on your laptop, from a television connected to your computer or laptop, or through one of the growing number of devices which can stream movies instantly from Netflix – including the Xbox 360 or Nintendo Wii.

Television Shows

If the thought of canceling cable and missing all of your favorite shows has you in a panic, you still have some options. Canceling cable doesn’t mean you have no way to see the latest episodes of your shows. As long as you have an internet connection, you can still access almost everything you can get on cable – for free.

Before you decide you don’t want to huddle around your computer monitor to watch television shows – keep in mind that you can connect most newer televisions to a computer as a monitor. When you find a show to watch, it will send it to the television instead of the monitor. This can be done with a simple s-video cable in many cases.

Where to find your shows:

• seetvpc.com
• hulu.com
• boxee.com
• youtube.com
• ABC
• NBC
• CBS
• Fox
• Lifetime
• A&E
• MTV
• HGTV
• Discovery Channel(Discovery Channel, Animal Planet, and TLC)
• PBS
• tvchannelsfree.com
• watchtvchannels.net
• channelchooser.com

The Rule of 72 tells you how many years you need to double your savings. To take advantage and get the most out of your savings, you’ll want to get in the habit of keeping 10% of your income as savings. For many people, this is difficult because we’re already living outside our means. If you can’t reasonably save 10% of your income, take a good, hard look at where your money goes for a period of three months by writing down what you spend or pay to the penny. Eliminate unnecessary spending and bad financial habits so that you are able to save 10% of your income in a savings account.

The Rule of 72 then says to divide 72 by the interest rate your savings receives to find the number of years needed to double your money. A low-interest savings account of 2% will take about 35 years to double (assuming the interest is compounded annually). Savings earning an 8% return will double at about 9 years.

When looking at your debts, you can use the “20-10” rule. Limit your total debt (excluding your mortgage) to less than 20% of your net annual income, and you’ll be able to use 10% or less of your net monthly income toward paying back debts.

If you earn $54,000 a year, you want to keep your debt under $10,800. ($54,000 x 20% = $10,800).

Your total monthly debt repayments (again, not counting your mortgage) should not be more than 10% of your net monthly pay.

If you earn $54,000 a year, you earn $4,500 a month. Your monthly debt repayments should be $450 or less. ($54,000 / 12 = $4,500 and $4,500 x 10% = $450).

Learning how to save and borrow money wisely are the basic building blocks for having financial security. Here are some tips to help you get there:

Live Within Your Means

All financial experts will tell you not to spend more than you can afford. Even people who claim they can’t save any money each month because they’re already using every last dime to pay just the basic necessities probably could trim down their expenses somewhat. If you keep a financial journal for three months and religiously record every last purchase and all the income coming in – you will be able to see where there is money being spent that is not necessary.

Create a Budget

Once you have a better understanding of your income and expenses, you can create a budget. Figure out how much is used to pay expenses and debts, and how much will be saved each month, and how much you have for miscellaneous spending and try to follow it as closely as possible.

Plan Ahead for Additional Spending and Costs

There is no point saving money if you can never use it! Plan ahead for events like vacations and unexpected expenses. When you plan in advance, you can keep your costs low by shopping around for the best deals and not just spending money spontaneously.

Long-term, fixed investment in bonds and CDs aren’t something we should consider investing in at this time, as the interest rates in America are going to remain depressed for some time as the Federal Reserve’s decision to keep them low in an attempt to help the economy recover will remain the practice.

That will be reinforced by the inflation numbers, which over the last year have risen by only 2.2 percent, while the Consumer Price Index was up only 0.9 percent, although that of course doesn’t include food or energy. Even so, that’s the lowest increase in 44 years for the CPI.

Add to that the bad economic news from Europe, with their sovereign debt crisis, and China with their own inflation challenges, and the possibility of the U.S. and other economies going backward is a real possibility, which will pressure the Federal Reserve to keep interest rates low, which as far as it relates to safe investing, should keep us in short-term investment vehicles, rather than long term, as eventually interest rates will rise, and we don’t want to get stuck with long-term rates which will under-perform inflation.

It’s not as if that’s not happening now concerning savings, because it is, it’s just that it’ll be much worse in the future if we lock ourselves into low-interest investments, as inflation will inevitably rise, and we’ll lose a lot more buying power if we lock in long.

There’s not much available out there, and we’re talking largely about building a fund to handle any type of difficult circumstance that may come along.

So for now, it’s far better to keep things short-term until we emerge out of the low-interest rate environment. Anything else will cause us to lose our buying power as the value of the U.S. dollar falls and inflation rises.

In response to requests from departments of Treasury and Labor on public comments concerning whether or not guaranteed-income products are able to provide financial security for retirees, Allianz of America performed a study, which among other things, found if a person viewed an age-morphed image of themselves, they saved a lot more money than those that didn’t view the image.

How the research was conducted concerning the image portion of it, was some participants were shown image of their current selves, while other the age-morphed images, which was what generated more savings from them.

What it seems to have triggered was how decisions they make today can affect the type of financial future they will experience, which is seemingly the impetus behind more savings. Continued research is being conducted to see if the age-morphing images can be used in an even more effective way.

According to Shlomo Benartzi, the University of California, Los Angeles, professor who prepared the report, including the behavior of retirees is a crucial element in savings, and not just how economic models are created to determine how they really should respond. He said, “Since the responsibility for managing money is shifting from employers to employees and retirees, the human element is vital to understanding how retirees manage–or mismanage–their savings and critical to designing better solutions and policies.”
 
Those participating in the research (academics), said their focus wasn’t on specific investment products, but on the actual behavior of people responding to investing in general.

In other research, an interesting piece of data concerning use of images was the opposite, in this case using photos of children as an incentive to put away more money for them.

Those putting aside money in an envelope with a picture of their children, were found to save much more than those that didn’t.

This research could be something you use to motivate yourself to save more. Even if you picture yourself older or have a photo of someone you’re saving for, it could be a good tool to improve and aid your saving practices.

The one thing about financial or economic news, is it can move up and down from hour to hour, and ultimately confuse a lot of people who don’t understand what’s happening because of the many variables involved coming from so many sources and viewpoints.

With that in mind, don’t get confused when putting away money for savings. For the most part, all that economic or business news has little to do with us at the individual level, and make make us think too much … to the point of rendering us paralyzed financially, or to make decisions based on macro-information which probably will have no effect upon us.

By macro-information, I mean news from around the world which takes into account the larger, global economic picture, and not the local.

Don’t allow all this chaotic news and variety of viewpoints affect the decision you’ve made to set aside a certain amount of money to take care of your needs in case of an unforeseen event which causes you to lose predictable income. Things like getting fired, laid off, injured, etc., which will cause you to lose monthly income.

No matter what happens economically, it’s never, and I do mean never, a bad idea to put away money for unexpected circumstances which can hurt you financially.

Some people give up or tell themselves things like “what does it matter?” or other dis-empowering thoughts, questions or statements, which ultimately create a self-fulfilling prophecy for those who think like that over a period of time, which causes them to stop putting money aside out of fear or feeling it won’t matter.

It does matter, and just remember that all the negative economic news, or even the economic news that sounds positive, is usually referring to circumstances of a country, or region in the world. Most the time it won’t have a direct impact on you, and even when it does, it’s usually in the loss of a job or hours being cut back, i.e. your income stream is either lost or diminished.

Either way, having money set aside is the best way to prepare for it, and no matter what happens around the world, or what economic news is reported, those who are prepared by having savings will be far better off than those who live from paycheck to paycheck with no backup funds.

So regardless of what happens, continue to sock away money for the times that could come where you’ll need to draw on your own money in order to continue living as you’re accustomed to.

Don’t let economic news – one way or the other – determine your savings plan or practices. Make a plan and work the plan, and forget about the big picture which at worst, will only have an indirect effect on your personal finances.

There will always be economic ups and downs which have the potential to disrupt our lives, those best prepared for those times are those who continue to save and build their wealth during those economic swings, largely ignoring the bigger picture and focusing on their own little economic corner of the world.

Sometimes the idea circulates concerning money management that prepaying your bills is a good way to get your credit rating higher.
That’s a myth. And in reality it can take away some extra money you otherwise could earn if you practice prepayment.

The reason it’s not a great idea to prepay bills is it takes away earning power from your money on a monthly basis, or whatever payment structure you’re under.

Keep in mind that savings and building wealth is done over a period of years, and every time you remove an element of potential earnings from the picture, it can multiply many times over throughout your lifetime.

For example, if you prepay your bills every month, the interest that money could earn is taken away from you. Multiply that over the years, and you can see how significant the amount can become.

Of course this doesn’t mean you should allow bills to be late so you incur penalties, as that’s just as bad as the other.

The point is that managing your wealth building involves a variety of steps which practiced over a period of time can generate significant results.

The same is true in the reverse. Losing a little here and a little there from even interest rates takes thousands away over the years, so doing a lot of little things right and with discipline produces the results all of us hope for and want.

So while paying your bills early sounds responsible and right, it is one of those little things that can hurt you over the long term.

Keep your savings money in an interest-bearing account at minimum, and only use it close to when the bills are do.

I do this on a monthly basis, waiting for the 1st of the month to transfer money for bills into my checking account.

The idea that doing it early helps your credit isn’t true; just paying your bills on time is what is needed.

Here is just one little thing you can do and change to add to your money-management strategy to help you reach your financial goals.

Making financial decisions which will affect our lives is one of the more important things we do, as it has an impact on almost every other area of our lives, and so it must be done with a minimum amount emotion.

What this means is developing and implementing a plan before emotion becomes a driving factor in the financial decisions we make. If we’re not prepared, then the events we face will drive the actions we take, and that is largely based on emotion when we’re surprised or caught off guard.

This is why setting aside savings to deal with the unexpected is so important, as once you start being driven by unexpected circumstances when you’re not prepared to deal with them, emotions are the key driver, and they can deceive you and leave you down all sorts of paths which aren’t financially healthy or sustainable.

It’s not the unexpected which is the cause of the emotions, it’s not being prepared for the unexpected which causes emotions to get in the way of common sense at times like these.

The problem of course is what happens when you’re working a good financial and investment plan and you’re caught in the process of putting it into action, but it can’t take care of an event which happened?

At this time it’s best to stand back, calm yourself, and reevaluate your overall circumstances. We must strongly resist making any decision immediately without going over everything.

There’s a reason you made a financial plan in the first place, and a reason you made the specific plan for you and/or your family. Nothing in that should change, even if you must temporarily put the plan on hold to deal with whatever has come up to disrupt it.

If it’s as simple as losing a job, and you are collecting unemployment benefits which allow you to only live at a very basic level, you can’t press to continue on with your savings and investment plan if you aren’t able to afford it.

On the other hand, you don’t want to throw the plan out as unattainable either, as that would develop habits which will harm your finances and goals over the long term.

The best thing to do is deal with reality and face the situation that is handed you. Don’t fall into despair where you make decisions which override what you’re trying to do over a lifetime.

Everything is a temporary setback, and it will change. That’s how to deal with emotions attempting to overwhelm you.

If you can get hold of your emotions and manage them, you’ll find all that has happened is your march toward financial independence has only been temporarily thwarted, and when things change they’ll continue on as they were; whether or not it’s through getting a different job, recovery from health problems, or whatever it is that caused the situation to happen in the first place.

Always take yourself mentally and emotionally out of the circumstance you’re in to get an objective look at the overall financial picture. Understand what it is you can or cannot change in the immediate future and the adapt yourself to what you face.

This is vital become emotionally-driven decisions of any sort are usually harmful over the long term, and that includes financial ones. What inevitably happens is you extend the financial pain you’re going through and make it much harder and deeper than it originally would have been.

In the end, you can’t control the unexpected in life, but you can control how you respond to it. Controlling responses deals with being calm and relaxed and trusting in the financial plan you’ve made, even when the circumstances you face scream for you that they don’t work.

There only a couple of reasons to keep our money in a low-interest savings account, one, to have immediate access to your money when unexpected circumstances arrive, and two, having it parked while you wait for quality investment opportunities to put you capital to work.

Now the first one is obvious and what we talk about all the time on Savings Toolbox, offering numerous encouragements and strategies of how to be sure you’ve got that safety account ready to protect you when you need it.

The problem with many people at that point is they tend to keep filling up these savings accounts with money because they aren’t sure what to do next.

Well, once you have reached your savings goal for the purpose of having a safe financial cushion to work with, at that time it is important to move out of the safety mentality into an investment mentality.

It’s a perfectly good strategy to have your safety money in a low-interest bearing account because it’s purpose is to buy you time when unexpected financial emergencies arrive; it’s purpose isn’t to build you wealth with solid returns, but to protect your wealth in times of trouble, by not forcing you to tap your important investment money.

The biggest challenge once you have you money set aside is to change from a safety mindset to a wealth-building mindset. Neither one is right or wrong, they just need to be applied in the right circumstances.

Probably the biggest reason we keep funds in low-interest accounts is they’re the simplest and most easy to understand, the most safe, and we tend not to want to change what we’re doing, as familiarity becomes a friend we don’t want to abandon.

The point of this article isn’t to come up with investment ideas concerning what to do with your money once you have a financial cushion, rather it’s to help you move out of one mindset into another, so you will start to break out of your pattern and into a new one.

Once you reach you savings goal there’s no reason in the world to continue adding to it. The major reason for that is because inflation will eat away at its buying power and you’ll never build wealth with tiny interest rates.

This doesn’t mean to panic and move your money for the sake of moving it, what it means is sit on that money available for investment with an eye toward waiting for the right deal to come along. Once it does, then pounce on it.

Savings accounts aren’t ends in themselves, they should only be a holding place for money waiting for good opportunities to come along. Excluding your money set aside for crises, there should be no other purpose for putting and holding money in a savings account other than for the purpose of investing it at opportune times.

In a couple of reports recently released from the U.S. Small Business Administration, the findings were over 50 million people working in the American workforce don’t have any type of employer-sponsored retirement plans, and of those offered them, over 50 percent don’t bother enrolling in them.

Now this is look upon as a big deal by the government study, but for those of us looking to increase out savings and build up a retirement fund, the importance isn’t what particular vehicle we use to build it up, but rather that we have plan in place we consistently contribute to.

First of all, let’s very briefly not that while the numbers above may be accurate in general, they don’t necessarily reflect the reality of the situation. Many government studies like this don’t delve deeply into what is happening, and can give a distorted view of things. For example, many people included in the study have a spouse which is building up their retirement through their workplace, and so the other spouse doesn’t use their particular fund, nor care about doing it. That skews the numbers, and changes a lot of the ominous feelings associated with it.

Another factor could be many people are saving on their own and investing some in a way that they aren’t attracted to a retirement plan offered in the workplace. I’m like that, but then I know a lot about investing and savings, and have the discipline to do it.

What I want to get at in this article is no matter what savings or investment vehicle we use to build our retirement fund or our cash on hand in case of emergencies, we must take charge of that strategy and own it. Nobody cares whether you’re prepared or not, and if we don’t take charge of our finances, nobody will.

Even if you do have an employee retirement plan you have entered into, you must make decisions on how you want you capital dispersed in it, in the sense of the level of risk you’re willing to take and other factors related to it. Do your homework even here, don’t just let someone else make the decision for you.

A basic rule of thumb is the younger you are the more risk you can take. While the older you get the more the term safety should be part of your practical investment strategy.

If you’re the type that has no discipline whatsoever in finances, then if you’re offered a chance at a retirement contribution through work, that would probably be the best way for you to do it.

What I’m saying is it’s not necessary to have that to build up your retirement fund, especially if you’re not offered it through your job or you don’t want to participate in it.
 
Again, it’s more important to have a plan you’re consistent in contributing to than what that plan is.

Many people say they aren’t able to afford giving to a retirement plan. Okay, if that’s you, just take a few dollars a month and start in a money market or savings account at your bank. Just don’t do nothing, as it creates habits that are hard to break even when you do generate more income.

Something is better than nothing no matter how small the beginning is. This especially true in building a retirement savings fund. If you don’t take charge of your financial future, there is no one else out there that will bother to take the time to do it.