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This is a guest post from Barry Ritz of
AssociateMoney. If you liked this post, be sure to stop by and visit his blog.

Recent studies show that more Americans are now saving their money instead of spending it. With the economy in a bad recession, people fear losing their jobs and income. So instead of buying unnecessary items, people are putting money into emergency funds.

Lack of discretionary spending actually hurts the economy, but I will not blame the frugality converts because I am also an avid member. In any case, the economy will not rebound anytime soon and we may need to ride out the hardships in the next 3-5 years time.

Even with Obama’s stimulus plan, it will not really push Americans to spend more. Most people will just put that money away as well. Meanwhile, if you look at savings account interest rates, most have been dropping, so you are getting little in return from these savings accounts.

Here are some tips to help you save more and cut out on expenses:

Refinance Mortgage Loans
Today’s rate on a 30-year fixed rate mortgage is as low as 4.50 percent. If you plan to stay in your home for more than five years, or if your current interest rate is high, then you certainly should talk to your local banker. You could save literally tens of thousands of dollars over the life of your loan.

As an example, a $120,000 mortgage with a current rate of 6.25 percent refinanced at 4.50 percent can save you as much as $70,000 over the life of the loan.

Negotiate Credit Card Balances
If you have outstanding balances, you could be paying as high as 28 percent interest. Take the time to call your credit card company and ask them to reduce your rate to their lowest advertised rate. Despite the credit crunch, banks are reluctant to lose good customers who made payments in a timely manner.

To retain your business, they will lower your rate. You will be surprised that a simple phone call can save you thousands of dollars.

Tip: If you have good credit, you may also want to try transferring your balance to a new card with 0% interest and aggressively paying off the balance. Discover Card offers 0% for twelve months.

Pay off Debts Progressively
The best way to save money has always been by reducing your debt first. The theory is simple but many people do not practice it as they don't realize how much they can save by simply paying a small extra amount to their principle each month.

It’s like lending the money to yourself, rather than borrowing from the bank. Often you can pay off installment loans in half the time by increasing the payment by a small amount. Again, you can ask a professional financial adviser to provide you a calculation of the savings.

Start An Emergency Fund
Savings is a safety net for those times when emergencies occur. Although deposit rates are low, it is still a great time to start a rainy day fund. The only way to accumulate any meaningful savings is by contributing to the fund on a consistent basis. Set up an automatic draft from your checking account or better yet, from your direct deposit.

By adding a little each week in a separate account you will see dramatic results over time. As the amount builds, you can purchase Certificates of Deposit to earn higher rates of interest. The hardest part for most of customers is developing a plan.

People who are new to putting money into savings can start small. Go for savings accounts which have no minimum balance. Ideally, you should accumulate up to six months of living expenses into a savings account so that whenever an emergency occurs, you can use their own savings rather than depending on credit to pay for it.

Tip: Online banks like HSBC usually offer higher interest rates than traditional banks.

Start A Household Budget
Take the time to develop a household budget so that you don’t spend beyond your means. Weigh your expenditures each month, review all of your loans and savings goals. Having a healthy spending balance is important when it comes to building wealth and saving money. Depending on credit to pay for car repairs or groceries will get you nowhere and only create a debt snowball.

Tip: Consider using the free Quicken Online program to help you monitor your income and expenses. Quicken is America's #1 Personal Finance Software.

Putting money into a savings account may be difficult at first, but the important thing is to get started. Don't bind yourself to any hard and fast rule though as everybody has different circumstances when it comes to saving money.

In a final note, we should stay optimistic. Though America is in the middle of a financial crisis, I believe we will get through it eventually. By returning to the basics, we may even be better for it in the long run.

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  1. Henry // April 27, 2009 at 6:57 PM  

    So in other words, it's the same route as usual: refinance, pay down high interest debt. Unfortunately, it's much harder now. Harder to refinance, harder to find a balance transfer card worth your while. But it still can be done.

  2. Imee // April 28, 2009 at 4:16 AM  

    Great posts! My fave would be the emergency fund. I've always been told to always save for a rainy day, so that tip makes the most sense to me.

  3. Jerry // April 28, 2009 at 9:36 AM  

    It's true that if you try your hardest to prepare for the unforeseen it can lead to peace of mind in the midst of turmoil. We have thought about refinancing our house but it's been turned into a rental property and the rates aren't great. I think we'll keep it for now as we only need about $1000 that will cover mortgage, taxes and insurance.

  4. MoneyEnergy // April 28, 2009 at 3:26 PM  

    Just one small point I would disagree with: "Lack of discretionary spending actually hurts the economy" -

    this is not true, because it depends on a faulty definition of economic productivity. *Spending* does not contribute to productivity, it is a consequence of productivity. Unfortunately, the US gov't includes both the *making* of wealth and the *spending* of wealth within the definition of GDP. Hence the appearance of beliefs like this.

    To drive the economy forward, businesses need to be able to take out loans and produce. With more savings in banks, ie., actual money stored away, business have more loans available to draw on. Really! That's how it works in a legitimate economy.

    Great post overall, though! Saving is always a good thing when coupled with a proper budget and income plan.

  5. Anonymous // April 29, 2009 at 1:08 AM  

    These tips are timeless and apply in any economic climate, however I think the idea that Americans are cutting back and saving more is a bit inaccurate. Sure, some people are in this boat, but many are cutting back because they have to. The money is no longer there for them to spend. From the article: "A new survey prepared for the National Foundation for Credit Counseling, released Tuesday, indicates many Americans are spending less only because they have less to spend, not because of a new urgency to save. And those who are cutting back don't plan to for long." Here is a link to an article about this topic,

    It is sad that people aren't learning their lessons from this situation. If this economy won't teach people how to prioritize I fear nothing will.

  6. tom // April 29, 2009 at 11:19 AM  

    Now is definitely a great time to cut back, budget and save for the unexpected.

    I think we should all think positively going ahead but plan for the worst.

    I am starting to readjust my plans and plan for this recession to get worse and for things to stay bad for at least 5 - 10 years