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.

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.

You may want to forgo going to a local business for your payday loan needs, as some major banks are now offering that as one of their latest services, and it would be worthwhile to see if they provide lower rates to meet your needs.

Wells Fargo, Fifth Third and US Bank are among three banks now offering the services, although what it costs to use the services at the banks isn’t clear for Wells Fargo and US Bank, at Fifth Third they do have things in place to check out.

For example, at Fifth Third, you can borrow up to $500 if you’ve had a checking account at the bank for at least six months. A fee of 10 percent is the cost of obtaining the loan, which is automatically paid off when you deposit your next paycheck in the account via direct deposit.

Even though the annual percentage rate is still a stiff 120 percent in the case of Fifth Third, it is far less than the costs associated with other providers of payday loans.

A couple of things to consider when taking account using a payday loan service ever, no matter if it’s from a much lower cost program or not, is what is leading you to need the payday loan in the first place.

As the needs can change from person to person, we won’t get into that, but each individual needs to know why they must pay such a high interest rate to get their hard-earned money cashed.

If you can’t change the reasons over the short term, you could start to gradually build up a savings fund so you can cheaply access your money at times like this without the added expenses.

Another option is to use the lowest interest credit card you have (assuming you have one), as even that will be cheaper than a payday loan at the lowest cost provider.

The point isn’t to feel guilty on why you need the payday loan, especially if it’s the only option available for you, but while you’re using them and looking for the best deal, it would be wise to build up your savings so you never have to do it again.

Even if you can only put a little away each check, you are working toward a solution to a problem that will remain long term if you don’t get rid of interest rates hitting you at even the lowest levels of 120 percent or more.

Here’s a savings tip that will change the way you save and has the potential to really help you build wealth and enjoy peace of mind while doing it.

So how does it benefit you to pay yourself rather than your debt? Think in terms of any type of debt the majority of people – and probably you – have. There’s usually a school loan involved if you’re younger, credit cards, mortgage and car loans, as the major debt most of us will experience.

Now if you’re in the place where you’re debt is out of control to the point of being unable to service it, that’s a different issue all together and must be dealt with differently than we’re talking about here.

Let’s assume you’re able to pay your debt and survive, but you have little to put away for savings or investment when you’re through for the month.

One fantastic thing you can do is celebrate when you get one of those debt loads paid off. Now here’s the secret though. Rather than using that money to pay down other debt, start to sock it away in savings or an investment vehicle of some sort on a monthly basis.

Think of it! Rather than paying an institution you owe, you’re paying yourself what used to be paid to the institution holding your debt.

Not only is that psychologically exhilarating, but it puts real money in the bank or whatever you’re investing in, and it won’t take long before it becomes a nice sum.

The idea of not only paying down debt, but now no longer having that debt and instead putting it away for your future is something just can’t be beat in personal finances and money management. It’s turning the tables on your lender and making yourself the payee.

Again, this works when you’re still able to pay off your debt without suffering the inability to pay your bills. If your debt is so out of control that you struggle to live, obviously that’s the priority to deal with.

But assuming you’re doing okay but just want to quicken the timeline of building wealth, take that money previously used to pay down your debt and invest it rather than spend it.

This works great because you see double the results in the first month. Say you have a $100 payment each month. You not only don’t have to pay that any longer, but you have an extra hundred to sock away for the future.

While we’ve been talking a lot about debt and the numerous ways it helps our lives to eliminate it, one of things we do need to understand is it’s a different purpose to eliminate debt and to look for great deals at low prices.

Some may think this is obvious, but I’m talking about doing things for the purpose of releasing money in order to build up wealth. Paying down debt, while important, and it can indeed help you set aside more money for wealth building once you lower it though a number of strategies, like transferring debt from a high interest credit card to a low interest card. That’s an immediate release of funds. The problem is, most people really addicted to debt need to focus on paying down that debt before they think in terms of trying to build up their wealth.

Having said that, I do think it’s good to take symbolic steps which can help you psychologically and at least put a little bit of money away, even if you have a heavy debt load. But overall, when you cut back on debt load and expenditures, it’s best to take that savings and tackle your debt before anything else.

Now the reason I lump this together with finding good deals, is many people are looking to cut back on monthly expenses for the purpose of putting away money for themselves.

This is a different purpose and a different practice, and you can see the results instantaneously as you take money saved and apply it toward building a financial moat and preparing for your retirement.

I mention this because I’ve communicated with people that sometimes confuse these two purposes of deal with our financial circumstances, when they are completely different issues, mentalities and financial challenges to work through.

When it comes down to it, lowering and paying off debt is to get you out of bondage to the lender, while looking for and getting good deals is for the purposes of lowering monthly expenses, building up financial protection and putting away for the future.

With one you’re releasing funds to deal with the past, and with the other you’re putting away funds to prepare for your future.

Debt is dealing with major financial surgery, and must be approached that way, while looking for deals is saving money through a thousand cuts. Each has its place, but we need to be sure not to confuse them, as they are completely different financial issues we’re dealing with, and it’s essential to understand one from the other when working through the financial morass we call life.

When someone puts away money into savings, the first purpose in doing it should be to build up a safety net for a minimum period of six months. In our current economic climate that could be extended to twelve months if you’re able to swing it.

Building up a personal cash reserve for at least a six-month period means you could continue living like you are and take care of all reflects the money you’re currently making at your existing job. So whatever you’re making on the job monthly now, you should multiply by six and have a goal of having at least that in your cash reserve.

Most of us know about or have heard something like this before, so we won’t get into that part of it. What I want to do is help you understand that reasons behind that financial safety net and not to move off of it no matter what happens.

I’ve been talking about investing in low interest rate and potentially high inflationary periods of time recently, and that can have the type of negative effect on someone in regard to their cash reserves if they attempt to battle those factors to the neglect of the purpose behind having a financial safety net under you.

The first thing to remember is your financial safety net is just for that and nothing else. No matter what happens, your purpose is to have a minimum of six months cash on hand available to take you through that time without suffering any losses. Nothing should move you off of that, even things like interest rates and inflation.

Now it doesn’t hurt to understand these pressures and know how to combat them, as long as it doesn’t cut into your saved capital.

So what you don’t want to do is start moving out of your comfort zone or the safety factor of your backup fund in order to beat inflation or get a better yield, if it has risk associated with it that could lose you money, or possibly cost you more through fees to change it to another account type which may give you a better return, but cost you as much to make the change.

If inflation does rear its ugly head in a big way, sure we must be mindful of that, as it could cut into the funds we have set aside to protect ourselves in difficult times. So what at one time was money set aside for six months could fairly quickly only pay for five months of living if inflation really takes off; which it probably will over the next couple of years.

At the same time though, the low interest rate environment should also stop, as it’s thought they should start rising sometime near the end of 2010, assuming the job market changes, which the Federal Reserve says will be largely the determining factor in keeping rates low if it doesn’t improve.

If inflation rises along with interest rates, you should be able to hold pretty steady for your safety fund, as they will grow together, hopefully close enough so you won’t have to try to increase your risk factor to keep up with it. Resist that temptation.

It would also be better to go over your financial obligations and habits in order to find places you can cut back if the cost of living goes up, as your primary financial goal should be to have enough put away in case of emergency. Everything else is build out from that foundation.

The bottom line is you must understand why you have a safety net in the first place, and even if outside factors like inflation cut into the buying power of that fund, you can either add more money to it to make up for that, or simply have a little less time to buy if things get bad unexpectedly for you. The worst thing to do would be to take steps which could threaten your protective nest egg.

A financial safety net is just that, and no outside force should do anything to make you start to take money out of it, other than for the purpose it exists: you lose your job and need to buy time to find a new source of income. That’s the purpose of putting money away: to buy time, and nothing else.

Now a little earlier in the article I mentioned something about the economic times we live in. Not only am I talking about the job market and inflationary pressures, neither am I talking about the pathetic returns we’re getting on our money. Rather, I’m talking about an even more increasing practice of businesses in outsourcing, hiring on a temporary basis, and moving to a more part-time culture.

With that in mind, it’s more important than ever to build up a cash reserve fund for yourself, as this will usually mean times of feast or famine for you, and developing the practice of putting away money when you have it is the best financial discipline you can have going forward.

Remember, a financial safety net exists for financial safety. Don’t do anything to tap into it unless it meets the needs you build it up for in the first place.

A variable interest rate CD is different from the fixed rate CD in that it is tied into the movement of current interest rates – whether up or down – while the fixed CD interest rate remains the same throughout the duration of the term. So with a fixed rate CD you know what you’ll make over the term of the CD, while with a variable rate CD you won’t.

The strength of a fixed CD is its safety and predictability, while its weakness is if interest rates go up, you don’t get to participate in the better situation; thus the reason for the creation of a variable-rate CD by financial institutions to address that situation.

With a variable-rate CD, if interest rates rise, your interest rate on the CD will rise with it, and if it falls, your interest rate on the CD will fall as well, giving some downside risk. For example, if you have a fixed rate CD and interest rates fall, you will still be able to collect the higher interest rate from the CD.

What this means is we must be aware of the interest rate environment we are currently in to determine the best type of CD to buy. In our current interest rate environment the U.S. government is holding interest rates down in an attempt to stimulate exports and hopefully stimulate the creation of more jobs, or at minimum, keep them from falling even further in the manufacturing sector.

Consequently, the current low interest rates mean that have nowhere to go but up, yet there’s a lot of questions as to the political will to allow that to happen. The thing that must be considered at this time then is when interest rates will be allowed to go up; that ‘s what determines your decision on the type of CD to buy.

If you believer after looking over the overall situation that interest rates will be raised by the Federal Reserve sometime soon, a variable rate CD could be a great way to invest for your safe money. You would probably get similar rates to a fixed CD, yet with upside potential. All of this depends on what bank or financial institution you do business with or buy the CD from, so all that has to be included in your decision-making process and where the interest rates will stand when the variable-rate CD is bought.

In a rising interest rate environment, when comparing a variable-rate CD versus a fixed rate CD, the variable-rate CD will do better.

Finally, check with the institution you plan on buying a variable-rate CD from as to how the interest rates are determined or measured. Banks tie the interest rates of the CD into different instruments, so you want to know what they are. Some, for instance, may track an interest index, while others may tie the interest rates to a U.S. Treasury Note. Either way, you should ask what is the determining factor in the movement of interest rates as it relates to your variable-rate CD.