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Saving pain is worth the interest gain

While financial planners recommend saving 10 percent to 15 percent of after-tax income to build a retirement account and an emergency fund, the U.S. Commerce Department's Bureau of Economic Analysis says the actual numbers are closer to 4.9 percent for the average U.S. household. Here are a few tips to raise savings rates to the recommended levels:

1. Save automatically. Sign up for an automatic savings or investing plan so that money is deducted directly from your paycheck or checking account. Money is whisked into your savings stash before you have a chance to spend it.

2. Avoid the ATM. Instant access to money, day or night, can tempt you to spend. Try to limit visits to the ATM to once a week. If you are saving for a particular goal, consider savings options with penalties for withdrawal, such as certificates of deposit for short-term goals or tax-deferred savings for long-term goals. Penalties may help discourage you from withdrawing your hard-earned savings.

3. Skip one big expense a year. Keep the winter vacation but ditch the summer one, or trade for an economy car instead of a luxury model. Bank the difference between what you could have spent and what you did spend.

4. Make larger down payments. When financing your next major purchase, put up as much money as you can. For example, by not financing $500 at a 12 percent interest rate over three years, you can put an additional $98 in your savings account.

5. Pay cash. This high-discipline technique will help you choose between what you want and what you need. Also, by paying cash, you avoid finance charges.

6. Find free finances. Using only no-fee checking accounts, no-fee credit cards and no-load mutual funds can save you $100 a year or more.

7. Find the highest rate of return. One way to earn more interest on your savings is to put your money in a CD or bond with a longer term than you originally may have considered. If you make your annual individual retirement account contribution in January instead of at the start of the following year, your savings will earn an extra 12 months of tax-deferred interest.

8. Forget your raise. When you get your next raise, pretend you haven't. Earmark that extra money for your savings or investment accounts.

9. Forget you've paid off a loan. When you come to the end of your payments on a student loan, car loan or credit card balance, send the same amount each month to your savings or investment accounts. You're used to giving that much away _ now give it to yourself.

10. Pay yourself back with interest. If you have to tap your savings, return the original amount to your account plus an additional sum based on a good interest rate.

Sources: "Fifteen Painless Ways to Save," adapted from The Money Book of Personal Finance by Richard Eisenberg; Money Online (http://pathfinder.com/money/ savings/painlessindex.html); "Smart Spending," Money magazine, October 1997.

Compiled by Anne Giles Rimbey.

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