People in the Midwest are the most conscious about building their nest eggs, while Southerners lag the national averages in saving and investing, according to a new survey by the brokerage A.G. Edwards.
In its third annual Nest Egg Index, Ohio, Indiana, Pennsylvania, Michigan and Wisconsin had the most communities among the top 500 communities the firm ranked according to a dozen criteria, including participation in retirement savings plans, personal debt levels and homeownership. Conversely, only Arkansas, Louisiana, Mississippi and Oklahoma did not have any communities in the top 500.
In a time of rising costs for items such as college tuition and medical expenses, Americans are saving at the lowest rate in the industrialized world, by some measures. According to the Commerce Department, Americans' personal savings, as a percentage of disposable income, were -1% in 2006. That compares with 11.6% in France and 10.6% in Germany, both in 2005, according to the Organisation of Economic Co-operation and Development.
If you haven't begun saving toward your nest egg up to this point, then you can initiate the process by reading "10 Steps to a Healthy Retirement." Start today with any amount you can, and make the payments to your nest-egg accounts automatic.
Take full advantage of all the investment vehicles that reward you for saving money for retirement. If you have a 401(k) plan at your company that matches funds, invest up to the match. If you don't have a 401(k) plan, take advantage of the tax benefits afforded to IRAs, making sure that you fully fund these retirement vehicles.
For those who need more ideas that can help aggressively jump-start your nest egg, the following options should help:
1. Indulgence tax: If you want to begin saving quickly, slap a matching indulgence tax on those things that seem to drain your money each month. That means that if you want that $3 cup of coffee each morning, you're also required to put $3 into your nest-egg savings. This will accomplish two things. First, it will make you think twice before automatically paying for all those treats that you have been giving yourself and will likely help reduce the amount you spend. Second, it will force you to save while still allowing you to splurge when you want to. This combination should help your nest egg quite a bit in the long run.
2. Live a raise behind: One of the easiest ways to build that nest egg is to live a raise behind. The next time a raise comes along, instead of increasing your lifestyle to meet the higher income, pretend the raise never came and continue to live on what you were earning before. Make sure to siphon off whatever the raise amount was into one of your retirement accounts. Continue to live a raise behind, and your nest egg should look quite healthy upon retirement.
3. Re-evaluate housing: Forget the McMansion and buy only what you need for your housing. If you have already own a big house, evaluate whether it is more than you really need and consider downsizing. Not only will the mortgage be less, but taxes, house upkeep and furnishing will also leave you with more money to invest. If you are thinking of a McMansion as a real estate investment, you'll likely get better returns by purchasing a house the size that suits your needs and then specific investment properties rather than a large house for yourself.
4. Skip the car: If you live in a city with decent transportation, consider dumping your car altogether. If not, buy a quality used car and drive it into the ground. Before buying a second car, give serious thought as to whether it is truly needed. Whatever the number of vehicles that you do decide to purchase, make sure that you purchase only the size and additions that you truly need for transportation and not more.
5. Build a part-time business: If saving more of what you currently make isn't possible, then take something that you love to do in your spare time and turn it into a small business. This can help supplement your income and build your nest egg while doing something that you truly love. It also gives you the opportunity to open up a Simplified Employee Pension Plan. If you run your business from your home, it can result in a large number of tax benefits. And if there is always a possibility that it will eventually become big enough so that you can quit your job and spend all your time doing the thing you love.
While the future always seems far away, it will arrive a lot faster than you imagine. For those who want a more specific rendering of how your nest egg is shaping up, A.G. Edwards also offers a nest egg estimator that will give you an indication of how your personal nest egg is progressing.
Make sure to take the proper steps today in order to ensure you arrive at retirement with a nest egg that will enable you to do all the things that you have always planned to do.
—For more ways to save, spend, invest and borrow, visit MainStreet.com.