SAVE MORE and set up an emergency fund:

Happy Labor Day Weekend everyone. In the spirit of the long holiday weekend, and the retail sales going on all weekend, I encourage you to save more. Pay yourself first, before going out this weekend and spending it all on the great sales out there.

President Obama announced this week that he would like us to save more, and so do I. The IRS will take certain steps effective immediately to make it easier for Americans to save more.

For years, studies told that our saving rate is virtually Zero. It is true; we spend what we don’t have. We live above our means, and are OK with spending using our credit cards, home equity loans, and even taking loans against our retirement plans if we are able to.

As Americans, who believe in the American Dream, we want it all and we want it now. This is what we call instant gratification. We have instant payday shops to get an advance on our paychecks, credit cards companies extend our credit card limits and increase it on a regular basis to amounts beyond our means, our home values (we thought) go only one way (WAY UP). Even our banks extended us home equity loans and lines of credit, interest only mortgages and several cash out refinance options.

Simply, frugality was out of style and saving for a rainy day was unnecessary.

For starter, we know that we need to save between 3-6 months worth of living expenses as an emergency fund. As financial planners for years, we told our clients that they could use their home equity lines of credit as their emergency fund. Wait a minute, now we have to adjust this theory, since most banks and mortgage companies are scaling back on their mortgage default exposure. These banks have reduced the home equity lines if not completely shut it down. This happened to me personally; I got a letter from my bank indicating that they believe my home value is much lower than it was few years back and I longer have access to my home equity line of credit. Now, I am saving for emergency out of necessity.

Currently, the saving rate is at 4%. This is great news we are saving more, but we should be saving at least 10% of our income. Cease the opportunity and don’t waste time, start saving now. You should start saving systematically by setting up a direct deposit from your checking account into a money market account. I know these accounts currently pay virtually no interest, but this will ensure, you won’t have to use your credit card and pay at least 13% in interest on the balance.