Debt reduction, consistency key in building nest egg

Although some forms of debt may be necessary, allowing your debt to get out of control can rob you of valuable savings opportunities. Reining in credit card debt and other types of debts will allow you to focus efforts on establishing and growing a financial nest egg.

Consumers have many alternatives that allow buying now and paying later. While those offers may be tempting, modern consumers could learn a valuable lesson from previous generations who didn’t have access to such options. Saving money first is not only a good idea for avoiding debt for larger purchases, it’s also a good habit to get into for finances in general.

Savings habits

Developing disciplined investment habits isn’t always easy, at least in the beginning, but there are ways to improve a savings routine. One of the easiest methods for establishing a systematic savings plan is to take advantage of the convenience of electronic funds transfer.

Consumers who already have electronic deposits made to their bank accounts may be familiar with EFT. Paying yourself first by using an EFT system can help you get into the habit of saving.

Direct deposit allows the opportunity for consumers to deposit all or part of their paychecks into the accounts of their choice, so a portion could be set aside to go directly into a savings account rather than a checking account. Another option is to set up an automatic monthly deposit. Authorizing a specific amount to be transferred from one account into another is a simple, disciplined way to add to savings.

Starting small is OK

Many people feel that if they can’t put away a considerable amount of money each month, a savings program won’t be worth it. In reality, you can accumulate funds and reach investment goals by investing a modest amount in savings; the key is to be consistent.

Consider this example: Let’s say you decide to save $50 a month in your savings plan. After 10 years, you would have saved a total of $6,000. If that money was invested in a basic account that earned a 6 percent return, the value of the account after 10 years would be more than $8,000.

As the example illustrates, saving a small amount at a time can pay dividends and help you get your finances on the right track.

Avoiding debt in all forms may be a difficult proposition, but keeping debt to a minimum and focusing on simple savings strategies will improve your financial situation.

Timothy M. Reese is senior vice president-investments with A.G. Edwards & Sons Inc. Member SIPC. He can be reached at timothy.reese@agedwards.com.