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.

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.

If you don’t think their are consequences to your actions, look at the sovereign debt crisis of Greece to see that it can extend to an entire country, and possibly continent, when certain behaviors multiplied times millions of people bring about the same result as a single person or couple going into debt can do.

I say continent above because there is a possibility that a number of these countries could bring down the euro if the credit fiasco extends to them, which is a very strong possibility.

These things are brought up to catch your attention. In America there are already major cities bankrupt, and California is on the verge of falling, which is a larger economy than most countries in the world.

This is isn’t to make you fear but to sober you up a bit on the condition of your finances. Many of us, even after what has went on the last several years, just don’t think something like that could happen to us. But it’s not just happening to poor people, but to all economic strata’s in the U.S. and other countries.

What is the bottom line for all of this? No matter if it is a continent, nation, state, city or individual, excessive debt is nothing more than spending beyond your means, or to such an extent that any unexpected situation will bring you down financially to the place of bankruptcy or complete insolvency.

The major lesson to learn from the Greece sovereign debt crisis is you can’t continue to pretend that it’s something that will just go away. Those heavy in debt are only one economic downturn from being exposed that they have over-spent.

Thinking negative times are just short term and you’ll rebound when an economic recovery begins is no different than rolling the dice and hoping the right numbers come up. In other words it’s gambling, and we’re all in a period now where those that have gambled are losing.

This is one reason to put away a nice chunk of money for savings. A nest egg protects you from prolonged negative economic circumstances and events which weren’t expected. But if you’re so deep in debt any long-term economic downturn can hurt you, then even a large nest egg may not be enough to save you, as many are finding out now the hard way.

If a state, country or continent has the risk of going bankrupt or defaulting on their debt, so can you be at risk. Even if you’re in a solid financial position, it’s a good idea to keep on top of your debt and refrain from going any further into debut until you’re in a much strong financial position.

As many Americans are practicing now, is the time to build up your cash reserves and pay down your debt. Forget about the stupidity of the U.S. government – which is close to going bankrupt itself – telling you to spend your money as if it’s some type of patriotic duty.

Now is a time to hold on to your money and build your cash foundation up and, as mentioned above, pay down your debt. Nothing should be more important to you than that concerning your finances.

Before I even get into this, you need to understand that an emergency fund is a must for anyone. The reason this is so is there is no way to predict what the future will bring, and consequently, to cover unforeseen circumstances or events which could put you in financial trouble, you need to build up an emergency fund to protect yourself.

Now what is an emergency fund as to its overall purpose? While I already stated the obvious that you need financial protection, the practicals of it is your’re buying time. That’s the ultimate result of having an emergency fund put aside.

What time does is offer you the opportunity to go out and find a job if that’s what happened, or to think through what your next step should be.

If you haven’t bought time with an emergency fund, you’ve basically limited your options to moving in with your mom or dad, or to accept the first job offered to you in order to keep your current lifestyle going, or to even stay in the home or apartment you own or are renting.

No matter what you do in the financial realm or what your goals are, be sure to make an emergency fund the first step toward your financial health and ultimately to build your wealth.

If you don’t have an emergency fund build up, you’re forever paying out what should have been used to put away in savings to build for your future retirement or lifestyle choices.

The reason is there is always some type of smaller event coming up that you weren’t aware was going to happen, and these endlessly eat away at your capital if you aren’t committed to putting away to build your emergency fund as the foundation of the rest of your financial strategy.

When you come down to it, don’t delay in any way in building up your financial safety fund. This is why I always advocate paying yourself first in all your financial practices, as there will always be something available to spend on if you don’t get into that practice.

But to get into that way of life you must commit first to doing it and take the first step. That’s always the hardest thing to do. Once you begin developing these financial habits, it’s surprising how easy it is to do it, and there’s an increasing sense of accomplishment, satisfaction and ultimately – the feeling of being prepared for what life may bring your way.

Just commit to taking that first step and decide on what you will put away and at what interval to build your emergency fund. Stick with it and in not too long of a time you’ll have a solid foundation to work the rest of your financial strategy from.

With the coming of the new year, the recession is expected to continue – no matter what government reports say – and so you should consider a couple of things concerning your savings account you set aside to protect you in times of emergencies.

There are a couple of things to consider in our economic times that will help better prepare you for the near future, that promises to be about the same as it has been for the last couple of years.

Keep in mind that many companies continue to lay off, reports continue to come in that the jobs lost over the last couple years may never return, and the so-called recovery will be a jobless one.

In other words, be sure to keep your emergency fund built up, and during 2010, I would advise you build it up for another several months at least, and if you can, up to a year. If the worst happens and you’re laid off, in these economic conditions you’ll have to assume it’ll take at least a couple months more than normal to get yourself another job. I would think in terms of at least several months more than normal to find a job if you’re laid off or fired; so building an emergency fund to reflect those realities should be part of your financial strategy for 2010.

The second element to take into account is the inflation rate. Already commodities are starting to rise in price for 2010, and the commodities rising in price directly have an effect on regular consumers. For example, oil prices and agricultural products are already rising in price, and that should continue on throughout the year.

While oil and related products are less than 5% of what we pay now, it is projected to reach as high as 6% or more for the year, which historically causes consumers to spend less during those period of times. More importantly, we need to prepare for those realities with our emergency funds, thinking in terms of adding an additional five to six percent in it to protect us during these times of inflation.

How to do that would be to get an accurate count of what your monthly expenses are on average through the year. Assume you’ll be paying an extra 5% during 2010 for living expenses; including oil, gas and food.

If your expenses are $15,000 a year say, and you’re building up a fund to protect you during an entire year, then just multiply the $15,000 by about 5% in order to come up how much more you want to put into the fund in case you lose your job or some other unexpected emergency arises which makes take a leave of absence or quit.

Either way, if you do, and you’re expecting your current emergency fund to take care of you for a year, and the cost of living has risen by 5%, you’ll have less money and time to work with than you originally thought. That’s why we must keep up with inflation to be sure we adjust our emergency fund reserves accordingly.

As far as the job market goes, it doesn’t look good in 2010, and that demands more money to be put away in my estimation, as the time it will take to get a new job could be much longer than normal.

Add inflationary pressures and longer time to find a job if you’re laid off, and you see how it would be wise to add several more months to your emergency fund at least, and if at all possible, I would extend it from at least six months to a year if you can, as the job market is that tough.

An emergency fund is there for you to buy time, and time is at a premium during an economic crisis, and inflation can cut back on the time you have it you don’t pay attention to it.

The Federal Reserve has stated more than once that it has no intention of raising interest rates anytime soon, and that eliminates most, if not all, avenues of generating a decent return on any safe investment.

While we enjoy a low inflationary period during these times in general, at the same time we get almost nothing for a return if we want to invest in some type of cash account.

So whether it’s a savings account, CD, money market account, money market fund, or any other type of cash investment, you’re not going to get much of a return right now, and it doesn’t pay to invest in something long term just to get a couple of percentage points of interest.

There’s no doubt inflation will kick in in the not too distant future, and if you’re invested in something so you can beat today’s terrible short-term cash investment vehicles, you’ll pay for it in the long run when inflation really roars, which with food is already happening, and is expected to increase over the next several years, if not more.

The answer to where to safely put your money right now is in what we’ve already mentioned: a cash account of some sort. All I’m saying is no matter where that is, it’s not going to give you any type of return worth talking about, and in most cases almost zero.

So why bother with even doing it in the first place? First, you need an emergency fund built up to protect you. If you don’t have one, the last thing to be concerned with is whether you can get a little bit more interest for you money. The first thing to be concerned with is to launch a plan where you put away a certain amount each month to build up at least a six-month reserve in case of an unforeseen situation that may happen to you.

Next, we’re not only in an economic environment thinking in terms of making money, we’re also in an environment where preserving capital is just as important. To do that, you have to forget about interest rates when they’re as low as they are today, and think more in terms of preserving your capital.

One psychological aspect to keep in mind is you’re probably doing better today than you were about a year-and-a-half to two years ago when you could get a decent return of five percent on a safe account. The reason is inflation was high at the time, and so in terms of growing earning power, you do as well today as then because there is very little inflation now, although it is starting to go up in some areas, but not enough yet to make a big difference.

It’s not really any better in this particular interest rate environment, but neither is it any worse.

So in terms of low-interest rate investments, think on a short-term basis, because inflation will return with a vengeance, and you don’t want to be stuck with a puny long-term interest rate just because you could get a little better rate today for a longer term commitment of your capital.

I wouldn’t invest in anything over a year, and would prefer something much less than that. Even a savings account or money market accounts may be the best bet because of the needed flexibility to transfer funds quickly to a better investment when rates begin to rise again.

Finally, forget about rates as far as the determining factor in a safe-money savings plan. The point is to get in the habit of putting money away to have emergency funds available. Interest rates are secondary at this time, but that could change when the Fed decides to increase interest rates.

Until that time, there’s nothing to do but keep saving and waiting, as it’s probably going to be a least a year before interest rates go up, and so trying to force something to satisfy your desire to have better interest rates could come back to haunt you when they really go up and you may be stuck with a long-term investment that is losing ground to inflation.

Don’t panic and do something you’ll regret. Interest rates will return in time, and until then it’s best to place your cash in something you can have immediate access to than anything else. Flexibility rules the day in a low interest rate environment, and that’s more important than anything else, other than putting the money into something safe in the first place.

As the current mortgage meltdown and economic crisis has taught us, how you’re paying for you home is as important as having a home. This will be very important going forward, as inflation is an surety after the huge spending of the U.S. government, and we need to keep this in mind with the financial decisions we make.

Inflation is already here, as you can tell from food and fuel prices, but what hides the actual figures are things like light trucks for example, which are included in the inflation numbers, but very few people are buying at this time. That means the price of a light truck, or another product which most people wouldn’t be buying at this time, could drop in price in a big way, but because it has no impact on most people, makes the inflation numbers look tame, but in reality the everyday cost of items we actually use are going up.

There is no doubt interest rates will eventually rise, and that will also put inflationary pressure on the products and services we all use.

So how does this apply to how you own your home? Simple: own it with a long-term fixed-rate mortgage. The reason this is so wise is as inflation rises and the government continues to print money to pay for its trillions in debt, the value of the U.S. dollar will continue to fall.

What that means is the money you pay off your mortgage with will be worth less in the future, and so cheaper from your standpoint to use for that purpose. In other words, you have a built-in inflation hedge when you pay for your home in this responsible and conservative manner.

To help you understand this a little better, think of the fact that no matter what the U.S. dollar is worth, you’re going to be paying the same amount of monthly payment for your mortgage over the 30 years you took out your loan. So as the U.S. dollar plunges in value, you continue to pay the same amount of dollars, even if they aren’t worth near the amount they were when you took on the mortgage. That’s a hedge against inflation, and a very strong and real one.

Don’t misunderstand, ignore or be caught off guard by inflation. It’s coming, and we need to protect our buying power through taking a number of steps to keep ahead of the inflationary pressures. Buying a home and mortgaging it with a 30-year fixed rate is one of the better steps to take to ensure this happens.

8In our continuing coverage of CDs, this article we’ll talk about callable CDs, which as with all investments, offers pros and cons if you decide to invest in one.

The first thing to understand with a callable CD is it can be returned by a financial institution before the term ends, along with whatever interest has built up during that time. Along with that, there is included what is named a call-protection provision, which guarantees you will own the CD during that period at the interest rate offered. For example, if you acquired a 3-year CD, it may be callable after you hold it for six months. At that time the bank can end the deal and pay you the principle and interest for that period, without continuing on with the contract.

I want to interject here concerning the reason in talking about CDs in all the various ways you can invest in them; it’s so you can not only discover what’s available out there, but more importantly, to understand what each one has to offer and why. This helps you become a better investor, even if you decide to go outside the relative safety of CDs into another type of more risky investment.

With that in mind, what value would it be for someone to invest in a callable CD, and why would a bank or financial institution offer one?  From the point of view of the bank or financial institution, it shifts the risk concerning interest rates away from the bank to the one buying the CD. Banks are managing their loan portfolio as it applies to interest rates of their deposits, the reason a callable CD is offered.

Why would we want to do something like that? It’s all about return on investment or interest rate yields; you get a higher interest rate for bearing the risk. This isn’t risk to your money invested, but risk as to returns.

During the period of time you own the CD, if interest rates fall, you then will have the bank “call” the CD if the call-protection period is over, causing to lose the higher interest rate you originally had.

How do you determine whether to invest in a callable CD or not? It’s all related to the interest rate environment and if your research shows it’ll fall, plateau, or go up.

The downside for the investor is if the callable CD is in fact called by the bank, it would force the investor to invest at lower interest rates, receiving less on their money.