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SALT LAKE CITY -- The tough economy has more people saving money across the country. But what should people be saving for first?
Financial advisers say the first thing you have to do is pay off your high interest debt. Let's just say you've done that. Good on you. You're ahead of most of us.
However, before you save up for anything else in particular, AAA Fair Credit Foundation CEO Preston Cochrane says you should build yourself some cushion in case hard times come back around.
With the cost of living and everything else going up so quickly, and income not maintaining the same pace, you'll have to actually save a lot more than what you think you will.
–Preston Cochrane, AAA Fair Credit Foundation
#cochrane_quote
"Before you start focusing on retirement, you need at least a three-month emergency reserve for any essential living expenses," Cochrane says.
If you can make it into a six-month or a nine-month reserve, all the better. Cochrane says it's taking more time than before for people who have been laid off to find another job.
Once you have your emergency reserve built up, Cochrane says whatever you decide to save up for next is up to you: Some families save for vacations, others save for a new car.
Cochrane says it's fine to save money for an expense the family needs now, like a down payment on a home or a new car, but while you're putting money aside for those expenses you should always save for retirement, without fail.
"With the cost of living and everything else going up so quickly, and income not maintaining the same pace, you'll have to actually save a lot more than what you think you will," Cochrane says.
When the recession first hit, many companies stopped matching their contributions to their employees' 401(k) plans -- and they have yet to bring that match back. So, if do you have a company match program, Cochrane says you have to participate.
"If you're not taking advantage of your employer match at work, you ought to really take a closer look at that, because that's free money that you're just leaving on the table," he says.
But should your retirement take priority over your child's college education when it comes to saving? As cold as it may sound, yes -- in some cases.
"If a parent wants to save for their own retirement or they say, ‘You know what? I'm going to save for my kid's education;' [remember], you can take out a loan for education but you can't take out a loan for retirement," Cochrane says.
He's not saying that you shouldn't put money aside for your kid's college education, but you have more options to help with paying for college than you do for your retirement.
Cochrane says the only loan available to many retirees is a reverse mortgage, which may not always be in the best interests of the borrower.
E-mail: pnelson@ksl.com
