Net Gains: When Cutting Out Coffee Isn't Enough

March 5, 2008 — -- This week, random money news and thoughts:

I believe in saving. I just wish we could kill the coffee example.

You know the one I'm talking about: Eliminate that $2-cup from your daily routine and you will have an extra $730 to tuck away in savings after a year. Invested at an 8-percent annual return, $730 a year will turn into nearly $83,000 after 30 years.

The problem with this example is that it has been beaten to death, and the savings cynics are never going to buy it. They've yet to meet anyone who built a retirement nest egg on the back of a home coffee maker.

It's time for new material. Rather than tell the savers how not to spend their money, I say let's suggest ways to actually save. Let's tell them where to put their money, how to get it there and how often to put it away.

My No.1 suggestion is to put your savings on auto pilot through a 401(k) or similar retirement savings plan at work. No matter how small your contribution, it will add up over time. Matching contributions, tax deferral and the power of compounding: Trust me, it can't be beat.

Once signed up for the 401(k) plan, arrange to have money transferred out of your checking account on a regular basis into a bank savings account or money market mutual fund. These days, don't consider anything paying less than 3 percent.

I came to reflect on my distaste for the coffee example as I reviewed America Saves Week, an effort last week aimed at improving our nation's anemic savings rate. The Web site published by the America Saves group suggests a number of ways to save money, including, of course, the coffee example.

Despite that transgression, the web site (www.americasaves.org) is worth a visit by those looking to kick-start their savings habit. In particular, look for the Five Savings Strategies page.

The America Saves Week celebration ended on Sunday, but this is one party it's never too late to attend.

The Internal Revenue Service has announced that taxpayers this week will begin receiving the first of two scheduled mailings about the tax rebates to be issued in the months ahead.