From the Virginia Society of Certified Public Accountants - Presented by Dean Knepper, CPA, CFP®


(July 1, 2007) -- Some habits are good — like saving money. While most people would admit that saving money is critical to their financial well-being, many people lack the discipline or know-how to sock away the money they need. According to the Virginia Society of CPAs, no matter what stage of life you are in, there are savings strategies that can work for you.

Set savings goals

The standard advice is to try to save 10 to 15 percent of your income. If that’s too much, start with a lower goal — say 5 or 6 percent — and work your way up. Once you get into the habit of saving, it becomes easier to increase that percentage.

You’re much more likely to follow through on your savings goals if you write them down. Classify your goals into short-term goals like building an emergency fund, medium-term goals, such as saving for a down payment on a home, and long-term goals, like providing for a secure retirement.

Although it may not be easy to accomplish, the best strategy is to allocate your savings across all three goals. While the tendency is to put off saving for long-term goals, the reality is that the sooner you start, the better your chance of reaching them.

Take advantage of compounding

Most savings accounts, CDs, and money market accounts pay compound interest. Compound interest is the interest that you earn on the interest that the financial institution has paid and added to the amount you initially deposited. So, in effect, you’re earning interest on your interest.

You may be surprised to learn how quickly you may double your money through the magic of compounding. You can use the “Rule of 72” to find out. Just divide the interest rate your money is earning into 72. For example, if you want to know how long it will take to double money earning 6 percent interest, divide 6 into 72, and you’ll learn that it will take just 12 years for your money to double.

Spend less, save more

The flip side of saving more is, of course, spending less. The sooner you start spending less, the more you will be able to save. Prepare a budget, shop for bargains, compare prices on big-ticket purchases, eat out less often, keep your car longer — there are hundreds of ways to save money.

Pay yourself first

Many people’s saving strategy is to pay the bills, spend on a whim, and save whatever is left over. The problem with this strategy is that there’s never anything left over. The way around this is to pay yourself first, and the easiest way to do this is to automate the process. Use your company’s payroll deduction plan, if available, and arrange for a fixed amount to be taken out of your paycheck and sent directly to your savings account or money market account. What you don’t see, you don’t spend.

Pay off high interest credit card debt

It's difficult to get ahead when you're paying 17 percent or 18 percent a year on thousands of dollars in credit card debt. A good strategy would be to shift that debt to a lower interest rate loan, such as a home equity loan or line of credit. Your interest costs will go down, and you’ll be able to pay off the debt faster. Just be sure to set up a payment plan you can afford, since a home equity loan puts your home at risk.
Keep just one credit card for emergencies, and pay for everything by cash, check, or debit card — all these methods require you to have the money before you spend it.

Max out your retirement savings

One of the best ways to save is through your employer’s retirement plan. When you contribute to a 401(k) or other tax-deferred retirement plan, your contribution is made with pre-tax dollars and the money in your account grows tax-deferred until it’s withdrawn at retirement. If your employer matches your contribution, that’s like getting free money. Always try to contribute the maximum allowed, but if you can’t, at least contribute enough to get the full employer match.

If you don’t have a retirement plan at work, you should open a traditional or Roth Individual Retirement Account (IRA), which also offer various tax benefits.

Bank any and all windfalls

Whether it’s an income tax refund, a bonus, or a mail-in rebate, don’t spend it. Deposit the money in the bank or in an investment account and watch it grow.

Get educated

Take the time to learn how you can effectively manage your personal finances. A good place to start is to visit the Virginia Society of CPAs’ Financial Fitness Web site, at

Work with a CPA

CPAs are skilled in helping clients create a financial plan that leads to a secure financial future. Make an appointment today to learn additional strategies for improving your finances.


The Virginia Society of CPAs is the leading professional association dedicated to enhancing the success of all CPAs and their profession by communicating information and vision, promoting professionalism, and advocating members’ interests. Founded in 1909, the Society has nearly 8,000 members who work in public accounting, industry, government and education. This Money Management column and other financial news articles can be found in the Press Room on the VSCPA Web site at


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