Zero in Savings? A New Year Means New Opportunities to Increase Your Savings - The 52 Week Money Challenge

Written by Lyn Brooks, Staff Writer

Zero in savings? We started 2016 with $0 in savings. Sadly, my family and I are not alone. According to a late 2015 survey by GoBankingRates, 28% of Americans have zero in savings, and 62% have less than $1,000 saved. What are any of us thinking? Who do we expect to help save us should a financial emergency occur? Santa Claus?

Whenever I think about the current state of my family's finances and our lack of savings, which is almost constantly, I start to feel a bit down, but then I remind myself that a new year means new opportunities!

How We Ended Up with Zero in Savings

The last few years have been extremely difficult, financially. I've survived several critical, and expensive to treat, illnesses. I then lost my job in the Great Recession.

When I couldn't find a new job in my area, I turned to freelance writing to try to make ends meet. For those of you that aren't freelancers, writing is truly a feast to famine proposition, but in my area there really isn't any other opportunities to increase my income.

My local economy is still depressed, with new layoffs being announced each week, so it continues to look unlikely that I will find a new job any time soon that will bring in more than what I manage to rake and scrape together freelancing.

In addition to my unstable income issues, last year my husband needed to resign his position of nine years and was then unemployed for another six months.

During this time, our home and garage suffered extensive damage during a winter storm that saw over three feet of snow fall in our area in less than 24 hours. Then the temperatures slipped to 24 degrees below zero Fahrenheit, taking out all of our plumbing. We lost a good portion of our personal belongings. We are still having issues getting the insurance settlement released so that we can finish repairing and rebuilding everything that we lost.

A few months later, my mother, who has been staying with us after surviving a stroke, accidentally caught a pan on my stove on fire. It took out the stove, the two walls around the stove and the exhaust and two cabinets above, as well as smokey soot on the ceilings and surfaces throughout my home. So, now we are without a stove to cook on, in addition to the other issues.

We've  ended up spending our entire life's savings in order to survive through all of these trials. It was the only way to avoid filing bankruptcy. It's still difficult to make ends meet, but slowly we are clawing our way back.

I am 47, my husband is 54, and, we have no savings!

Steps We Are Taking to Begin Rebuilding Savings

This is a new year, hopefully it will be a better one for us, and millions of others, financially. As this new year is starting, I know this is the year that we must at least begin to think about rebuilding our savings. We are both getting older, and not in the best of health, so, realistically, there really isn't a lot of time left to rebuild our retirement nest egg.

401(k) Savings

Our main issue at the moment is that we realistically don't have a lot of expendable income to divert to savings. My husband just became eligible to contribute to his new employer's 401(k) and so he is contributing 10% at the moment.

It's the start of the new year, and my income from writing really doesn't start picking up until later in the spring. I suppose I could wait to being saving, but I really feel that it's important to start now, while I have this "new year, new opportunity" mindset and momentum  going for me.

Saving Tax Refund

Of course, we already plan to save the bulk of our tax refund that we will receive later in the spring, and that should be a little over a thousand dollars. I really want to do something in addition to this and my husband's 401(k) contribution though, something that will get us back in the habit of setting aside money for our savings on a regular basis.

Start Small and Build - The 52 Week Money Saving Challenge

That's why we've decided to do the 52 Week Money Saving Challenge. It's a really simple strategy to help folks get back in the weekly habit of saving money. I like it because it starts with a small amount, just $1 the first week, and lets you slowly increase the amount you are saving each week, so that it feels less painful to your budget. It also works out well with the cash flow cycle that is generated by my freelance writing income.

Getting started is really simple. Set aside $1 at the end of the first week, $2 for the second week of the year, $3 for the third, and then continuing on and adding just one additional dollar that you set aside for each week of the year. At the end, you should have $1,378 saved.

I know that in the grand scheme of things, $1,378 is not really a lot of money. Certainly not enough to retire on in a few years. But, it does help us to begin rebuilding our savings.

As the year continues, I plan on looking for more ways for us to increase our savings. To reach our goals, we will need to cut back on spending, as well as looking for ways to grow our income. I plan on sharing my journey with you. I hope that sharing my successes and failures, will help others, and, I hope that you, dear reader, will help me by sharing your tips and words of encouragement in the comments section!

Getting Started Saving Money

2016 began on a Friday, and so, I began my week 1 on the first day of the year. This year will also end on a Saturday, so my week 52 will end on Friday, December 30th, instead of the 31st. Week 5 just recently passed, and so, I have $15 in my savings at this point. ($1+$2+$3+$4+$5) This coming Friday, February 5th, will be the start of Week 6 and so I will deposit $6 to our savings account on this date.

Again, I know this isn't a lot, but it's a start! It's also still not too late to join me! Just deposit/transfer $15 into your savings account, or, if you don't have a savings account yet, put it in a jar or other container to save up and deposit later. Then, as each week passes, increase the amount that you add to your savings by just one dollar more. At the end of the year you will be $1,378 closer to reaching your grand savings goal.

We are saving to build an emergency fund, and then, add to our retirement savings. How do you plan to use your savings?

Photo Credit: Flickr, Images_of_Money

How We Are Breaking the Cycle of Living Paycheck to Paycheck

Written by Lyn Brooks, Staff Writer

Editor's Note: This article, How We are Breaking the Cycle of Living Paycheck to Paycheck, originally appeared on Yahoo! Finance in 2014, where it was a featured article. 

According to the Bureau of Labor Statistics, overall unemployment in America was down to 6.6% as of January, 2014. While this is certainly good news, significant challenges to long term economic growth remain, so, it's wise for households to prepare for another economic downturn. That's difficult to do if you are living paycheck to paycheck.

According to a recent article in Time magazine, over half of all Americans are still living paycheck to paycheck, 44% of American families have less than $5,887 in savings, and 56% have sub-prime credit. Sadly, after losing my job in the Great Recession, and facing unprecedented, catastrophic medical bills, my own household is part of that statistic.

At one point, after we had exhausted our savings and 401(k) plans, maxed out our credit cards, and ran out of unemployment benefits, our financial situation was so desperate that we almost lost our home to foreclosure. Slowly, we've managed to claw our way back from the brink of total financial ruin, but, we are still living paycheck to paycheck. I know that even though our finances have started to improve along with the nation's economy, we have to take action now to break the cycle of living paycheck to paycheck.

We've taken the following steps to break this cycle and regain control of our finances.

Take Stock of the Situation

The first step that we took to gain control of our finances was to take an honest and complete inventory of what we were spending our money on. We used a spreadsheet but you can take the old school route and write it down a piece of paper. Regardless of what method you use, make a list of where each penny goes for the next 30 days.

Create a Realistic Budget and Get Everyone on Board

Next, sit down with your spouse, or significant other, and talk about where the money is going, and where you can cut expenses. This is harder than it sounds. My husband and I had several painful conversations when we started this process, and to be successful, everyone has to give up their "sacred cows." It's very important that every member of the family gets on board and contributes to making the new household budget and commits to sticking to it. Otherwise, you will just sabotage one another's efforts and you will fail before you even start.

Negotiate with Service Providers

As part of the budgeting process, contact every provider and attempt to negotiate reduced rates for all of the services that you pay for. Many providers offer discounts based on bundling services, or if you belong to certain groups, organizations or even where you bank. By contacting our car insurance carrier, we were able to get our bill cut by 20% and save $600 year just because of whom we bank with. We were able to slash our telephone bill in half by eliminating certain features that we hardly used, and bundling our phone service with our internet service. This saves us $360 a year. We got rid of our triple digit cable bill, saving us over $70 a month and now use a popular streaming service that also allows us to choose unlimited DVDs each month for less than $30 a month. By talking to these three providers, we save over $1,800 a year.

Slash the Grocery Bill and Costs for Eating Out

Look at how much your family spends on eating out, as well as on the grocery bill, and learn how to drastically cut costs by learning how to cook at home. Even if you have a busy lifestyle, you can make delicious, filling, and cheap soups and casseroles in a slow cooker by tossing in fresh produce that is in season, bulk dry goods such as dried peas and lentils, cuts of meat that are on sale and marked down. 

If you have the space and the know-how, try planting a small garden and growing some of your own produce and herbs to save even more. 

Sometimes, for a treat, we do eat out, but we usually go during lunch hours instead of dinner. Many sit down restaurants offer lunch specials and other discounts during this time, and you will save money if you get water with lemon rather than paying for coffee, tea, soda or other beverages. Using this strategy saved us over $5,000 on our annual grocery bill when we first adopted it.

Set Savings Goals and Pay Down Debt

Once you have slashed your expenses, start savings goals and stick to them. Start by saving $100 in a rainy day fund. Then, move on to bigger goals, such as $1,000 in an emergency fund, and then saving at least three months of living expenses. 

Start or rebuild your retirement fund at the same time. In addition to establishing savings funds, use part of the savings from your budget to pay down your credit card and other debt and make a resolution to not incur new debt.

Enjoy Less Stress as You Get Your Finances Back on Track

My husband and I earn a modest salary, together, we earn less than $50,000 a year. Using these strategies, we've managed to save $100 for a rainy day and $1,000 in an emergency fund this past year. Now, we are working on saving three months worth of living expenses. 

We've also managed to rebuild our retirement fund to over $10,000, pay off $14,789 in credit card debt, and over $10,000 in medical debt and not incur any new debt in the last two years. It is a relief to no longer worry about how we will pay our bills.

We still have a long way to go to get back to where we were before The Great Recession, but we are slowly breaking the cycle of living paycheck to paycheck. Anyone can if they take the time to create a realistic budget and savings plan and be determined to stick to it.

Cashing Out My 401(k) Early Was a Costly Mistake

It's tempting to cash out your 401(k) if you are facing unexpected bills or a layoff. Losing out on interest and other growth opportunities, however, isn't the only consequence of withdrawing part or all of your balance from your 401(k) plan, as this contributor discovered. Continue reading to learn about why cashing out a 401(k) account is a costly mistake. 

By Lyn Brooks, Writer

Most of us who have 401(k) plans are told upfront by our plan providers to avoid taking early distributions from our 401(k)s if at all possible.

When I lost my job in 2011, and had unexpected medical needs and fell behind on my house payment and other financial obligations, it seemed like the only option that I had to prevent foreclosure was cashing out my 401(k). Since I wasn't returning to work, I assumed that the value of my 401(k), combined with my unemployment benefits, would be less than my earned income from prior years, so I did not plan for any potential tax consequences. This was a mistake.

Most people are knowledgeable enough about 401(k)s to realize that every dollar that you take out of your plan is a dollar that has lost time that it could have been invested, compounding and growing. What you may not realize is that if you take an early distribution from your 401(k) there is a "special" federal penalty tax of 10% on early distributions.

While the investment firm I used held out 10% of the value of my 401(k) for federal income tax purposes, this does not begin to cover the federal tax penalty for the early withdrawal. Also, to make matters worse, if you have taken a loan on your 401(k), and you do not pay it back before leaving your employer, the amount left due on the loan is also counted as a taxable early distribution and is also subject to the 10% penalty.

Each year I have always managed to earn a refund on my federal tax return, but in 2012 I had to come up with a little over $2,500 by April 17th to avoid the additional penalties and interest on my federal tax bill. While my total earned income from the 401(k) distribution and unemployment benefits was less than I usually make each year, the 10% penalty is an unexpectedly significant amount. The entire amount due on my tax bill for 2012 was the 10% penalty for the early distribution from my 401(k).

I cannot stress enough that if you have a 401(k) and you are short of cash that you should try every way possible to avoid taking an early distribution from your plan. If you are like me, and you find yourself without a job and you have no other way, then my suggestion is to run the numbers at the time of your distribution and plan for the 10% penalty that will be due at tax time so you can go ahead and set it aside.

Luckily, my state does not also impose a penalty tax for early 401(k) distributions, but not all Americans are so lucky. My suggestion would be to check with your state to discover if there is also a state penalty tax for the early distribution and plan for that as well.

Since I was unaware of this penalty, I only found out what was due when I completed our taxes, which left less than two months to come up with the $2,500 that was due. A little planning on my part at the time of the early 401(k) distribution in 2011 would have made this a little less financially painful and certainly less stressful.

At the time that I took the distribution, I assumed that I would eventually find another job and easily be able to rebuild my retirement savings. I was very wrong. Three years later, I am now self-employed as a small business owner and struggling, with even less means to begin to rebuild my retirement savings. Cashing out my 401(k) early was not only a costly mistake, it was, perhaps the worst financial mistake of my life. By sharing my story it is my hope that others will learn from my mistake.

Photo Credit: 401(K)2013 and 401K Calculator