Mellody Hobson: How to Cure Savings Phobia

Everyone knows they need to save money. It is the most obvious financial necessity, yet the one most people look past. According to a Bankrate financial literacy survey, 66 percent of respondents recognized it was very important to keep three months' worth of living expenses saved, while another 26 percent said it was somewhat important. However, only 44 percent said they actually keep this amount of savings on hand at all times, while 28 percent said they sometimes do.

A recent poll by USA Today revealed the most important financial goal in 2005 is to pay off debt (29 percent), ahead of saving more for retirement (24 percent), saving more for large purchases (18 percent), estate planning (6 percent) and life insurance (3 percent). Meanwhile, debt continues to rise. In fact, according to Cardweb.com, the average credit card debt per household in the United States is $9,205. To make matters worse, interest rates and credit card fees are on the rise. Specifically, the average late fee was $32.49 in 2004, up from $31.24 in 2003. These fees can add up quickly. In fact, Americans paid more than $24 billion in credit card fees in 2004 -- $14.8 billion in penalty fees, $6.1 billion in cash advance fees and $3.5 billion in annual fees -- an 18 percent increase from 2003.

What Do You Need?

Not only is it important to have money saved in case of a major financial crisis such as an unexpected job loss, illness or accident, but it is also important to have a short-term emergency fund to handle minor financial emergencies, such as a car repair or new appliance. For example, on average, it costs between $7,000 and $10,000 to replace a roof and $300 to repair a washer and dryer. As such, when thinking about your savings, you should think in terms of long-term and short-term needs.

Long-term: You should have three to six months of your current living expenses socked away in an emergency fund. To determine how much you will need, take into account all of your monthly bills, including: mortgage or rent; car loans; gasoline; credit card bills; utilities; food; medical costs not covered by insurance and/or the cost of COBRA; day care; etc.

Short-term: Although most minor emergencies usually cost less than $1,000, you need to evaluate your personal situation to determine how much you should have on hand. For example, take into account your family situation, the age of your appliances and car, as well as other items in your household that might need repair or replacement.

1. Do it for your kids

Money is a major cause of stress for all, but can be a particularly damaging concern for children. According to a survey by the National Center on Addiction and Substance Abuse at Columbia University, high-stress teens are twice as likely as low-stress teens to smoke, drink and use illegal drugs.

While the results of stress may not always be as dire as those revealed in Columbia's study, children learn money habits from their parents. As such, it is important to set an example when it comes to spending and saving money -- one which you want your children to follow.

2. Slow and steady

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