How to make saving money easier

Dear Liz: What’s the easiest way to save money? I have the hardest time. I want to save, but I feel that I don’t make enough to start saving.

Answer: The easiest way to save is to do it without thinking about it.

That usually means setting up automatic transfers either from your paycheck or from your checking account. If you have to think about putting aside money, you’ll probably think of other things to do with that cash. If it’s done automatically, you may be surprised at how fast the money piles up.

The second part of this equation is to leave your savings alone. If you’re constantly dipping into savings to cover regular expenses, you won’t get ahead.

People manage to save even on small incomes because they make it a priority. They “pay themselves first,” putting aside money for savings before any other bills are paid. Start with small, regular transfers and increase them as you can.

Even military careerists need a Plan B

Dear Liz: I’m about to marry an active-duty military man. We’re in the process of marrying our finances, and I have several questions.

First, what is a good emergency fund for us? We run our household on his salary because I’m recently unemployed. I’ve always had a six-month emergency fund for myself, but because he’ll theoretically always be employed, should we have less savings in emergency funds and more in retirement and investments?

Second, along with my unemployment, I’m bringing about $15,000 in savings and $9,000 in student loan debt (at 4.5%). He has about $5,000 in savings and no debt at all. Neither of us has a retirement account or any other investments. I’m leaning toward paying off my debt so that we start on even ground, but I have a feeling that you’re going to tell me not to do that. What should I be considering at this time?

Answer: The military offers good benefits and generous pensions to people who make the armed services their career. But the pension probably won’t cover all your expenses in retirement. (Remember, if he retires after 20 years of service, he’ll get only 50% of his base pay.) Besides, there’s really no such thing as “guaranteed” employment, even in the armed services, so it’s smart to have a Plan B.

Your husband-to-be should be taking advantage of the federal Thrift Savings Plan, which works like a 401(k) for civilians, although there’s no employer match for service members. He can contribute up to $17,000 a year ($17,500 in 2013), his contributions are excluded from his taxable income, and the money grows tax-deferred until it’s withdrawn in retirement, at which point it’s taxed as regular income.

The Thrift Savings Plan also has a Roth option. Withdrawals from a Roth in retirement are tax-free, although contributions usually are included in taxable income. The exception: If your fiance is deployed, most or all of his income would be tax-free, so he would be able to make contributions to the Roth with tax-exempt income, said Joseph Montanaro, a certified financial planner with USAA. That’s a pretty great deal: no tax on the contributions going in, and no tax on the withdrawals coming out.

If your man isn’t deployed, he still might want to divide his contributions between the regular and Roth plans so that he would have different savings “buckets” to tap in retirement and thus more control over his tax bill.

He probably wouldn’t get a full military pension if he leaves or is forced out of the military before he has served 20 years. But he would be able to take his Thrift Savings Plan balance with him.

When you return to work, you also should start contributing to a retirement fund. If you don’t have access to a 401(k) or 403(b), you might contribute to an IRA or a Roth IRA.

Although you would be smart to pay off any high-rate debt, such as credit card balances, you need not be in a rush to pay off low-rate, tax-deductible debt such as student loans, especially if the rate you’re paying is fixed. Instead, focus on building up that emergency fund. The exact amount you need is more art than science, but a six-month fund would be prudent.

Are you ready?

A big storm is threatening the East Coast, and my buddy Elizabeth Razzi had some good advice yesterday for getting ready:

 “From my experience, most important prep includes doing ALL the laundry, making milk jugs of ice for the fridge, clearing leaves from drains and having a good supply of ground coffee for the French press.”

At the same time, Ann Carrns over at the New York Times’ Bucks blog was wondering about “Keeping Cash on Hand, Just in Case.” Carns asked whether it might be prudent to have a stash of green in case hackers took down an ATM network. Of course, the more likely scenario is that nature will be the culprit: hurricanes, floods, earthquakes, blackouts and other disasters can make getting cash tough.

I’ve kept a stash of cash handy ever since I lived in Alaska, land of extreme weather and earthquakes. Up there, I also learned to keep a two-week supply of food, water and fuel at home, to carry emergency supplies in my car and to always keep the car’s gas tank at least half full. (You can learn more about emergency preparedness at www.ready.gov, among other sites.) Our supplies include camp stoves for cooking, since both gas and electric lines can get disrupted. You can get single-burner camp stoves for about $20 and propane cylinders for around $5.

We’re so used to modern conveniences, from a ready supply of electricity to a steady supply of ATM cash, that it can be hard to imagine what we’d need to survive life for several days without them. If you’ve ever flipped on a light switch when you knew the power was out, you know what I mean—our brains really aren’t wired for disaster. But taking a few minutes to gather some supplies, check flashlight batteries and tuck away a little cash can make getting through any disruption, by nature or otherwise, a lot easier.

What emergency preparations have you made? What do you still need to do?