By Michael Wentzel
Democrat and Chronicle

(Sunday, January 27, 2002) -- Even when Bob Brennan was a young boy, he knew what to do with money.

"When my brother and I each got a dollar for something, his buck was gone in 10 minutes," says Brennan of Pittsford. "I saved mine."

Saving became a habit. During 30 years in data processing systems development at Eastman Kodak Co., he routinely had part of his salary taken out and put in an investment plan.

"You have to put it where you can't get at it," he says.

Brennan, now 73, is enjoying what he calls a "comfortable retirement"

"I'm a lifelong saver," Brennan says. "It pays to set money aside."

In recent years, Americans have gained a reputation of being a people who spend a lot and save only a little, if at all. The statistics support the image.

The U.S. Personal Savings Rate, computed by the U.S. Department of Commerce's Bureau of Economic Analysis, measures the percentage of money saved out of disposable income, the cash left after taxes and government fees. Contributions to Individual Retirement Accounts and 401(k) plans count as savings.

In November, the savings rate was 0.9 percent. In September, the rate had reached a three-year high of 4.7 percent. The average savings rate for the first 11 months of 2001 is 1.7 percent, far below the 10 percent to 15 percent level some experts recommend.

The best way to start saving money is to develop a realistic budget, says John Gilligan, executive director of Consumer Credit Counseling Service of Rochester.

"The budget is an important first step," Gilligan says. "You have to know how much money you have and how much you don't need for expenses. You have to know where you spend your money."

Start by writing down each purchase and each use of money for a month. Record all required expenses, including, of course, rent, mortgage or car loan payments. Write down everything: the cost of a pack of gum, a pack of cigarettes, the week's food at the grocery store or a Lotto ticket.

"People are amazed at how much they spend on lunch or cigarettes or Lotto or parking their car," Gilligan said. "The budget helps you see where to make choices. If you don't need it and just want it, it's something you can cut."

New savers should set goals for their money: education, vacation or retirement, for example, says Nannette Nocon, senior financial advisor at American Express in Brighton.

But first, a saver should build a fund for emergencies, Nocon says. The target should be from three to six times monthly expenses.

Even though interest rates are low now, money market accounts provide the best combination of safety and access to money without a penalty -- two requirements for an emergency reserve fund, Nocon says.

After the emergency money is in place, savers should consider the stock market.

"If you believe in free enterprise, it is the way to go," Nocon says.

Many stock mutual funds allow start-up purchases of $100. For IRAs, as little as $25 can be invested each month.

To encourage lower-income workers to save for retirement, the new tax law provides a tax credit for contributions to IRAs, 401(k)s and other employer-sponsored retirement plans. The credit is available from this year through 2006.

The credit ranges from 10 to 50 percent of the contribution, depending on the taxpayer's income. The credit is available only for taxpayers with adjusted gross incomes of $50,000 or less on a joint return, $37,500 for heads of household and $25,000 for singles.

For those who are not saving for retirement, have more immediate goals and prefer the reduced risk of certificates of deposit, Nocon recommends six-month certificates.

"Interest rates are bound to go up, so stay with short-term certificates," she says.

Most six-month certificates now carry interest rates of 1.5 to 1.8 percent.

U.S. Savings Bonds -- both EE and I bonds -- also offer a low-risk alternative with interest rates of four percent currently higher than many CDs.

Savers have to exercise discipline to amass the money to invest.

Payroll deduction plans provide a forced dose of discipline for those who have not acquired the habit of saving.

Many plans can automatically transfer money out of a paycheck to a simple bank savings account, a mutual fund or any designated investment.

"Very few people have the discipline to go to a bank with their check and put it in a savings account," Gilligan says. "If you don't see it, after a while, you won't miss it. Of course, you have to have the discipline not to take the money out right away."