Net Gains: When Cutting Out Coffee Isn't Enough

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.

Tax Rebate Update

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.

The informational mailing will inform taxpayers they may be eligible for an "economic stimulus payment" and inform they will need to file a 2007 tax return to start the payment process.

A copy of the notice outlining how the rebate program works is available on the IRS web site, www.irs.gov.

The mailings will take place in three batches this month and go to anyone who filed a tax return last year, the IRS said. In late March, the IRS will send special notices to recipients of Social Security and veterans' benefits explaining extra steps they will need to take to receive their payments.

Payments of up to $600 per adult and $300 per child will begin to be issued in early May, the IRS says.

Consumer fraud

For the eighth year in a row, identity theft ranked as the top consumer complaint received by the Federal Trade Commission in 2007. It accounted for nearly a third of all complaints received, the FTC reported last month.

Credit card fraud followed by utilities fraud accounted for the highest share of identity theft complaints.

Reported losses from the 258,000 complaints totaled $1.2 billion, with the median loss amounting to $349.

This work is the opinion of the columnist and in no way reflects the opinion of ABC News.

David McPherson is founder and principal of Four Ponds Financial Planning (www.fourpondsfinancial.com) in Falmouth, Mass. He previously worked as a financial writer and editor for The Providence Journal in Rhode Island. He is a member of the Garrett Planning Network, whose members provide financial advice to clients on an hourly, as-needed basis. Contact McPherson at david@fourpondsfinancial.com