Thursday, February 23, 2012

On Your Mark, Get Set, Save!

By Robert Stammers, CFA
Director, Investor Education


America Saves Week recommends that individuals find ways to “save automatically” as a means of achieving their financial goals without breaking the budget.

With America Saves Week (February 19–26) around the corner, it is a good time for Americans to review their savings habits and to determine easier ways to save. Many people have difficulty achieving their savings goals because they lack the financial discipline to save or because they set their savings targets well above what might be reasonable. One way to circumvent both of these issues is to find ways to save automatically that won’t have a significant effect on your budget but that can result in significant savings over time.

The Difficulty in Saving

To reduce the frustration that can occur when attempting to save, it is essential to set attainable goals, but it is even more important to develop financial management discipline. One reason the savings rate in the United States is low compared with that in other countries is that most Americans don’t know where their money goes.

Few prepare monthly budgets or know how much money they should have at the end of each month. The common practice is to get paid, spend on bills and other necessities, and then save as an afterthought.

With this type of unfocused financial management, anyone would be lucky to have any money left over. Even if you are fortunate to have some money at the end of the month, the overage is often put into temporary savings to cover any unexpected payments when the next month’s expenses come due. The adage “failing to plan is planning to fail” is apropos in this context because most people will find ways to consume their discretionary income if it is not already earmarked for saving.

Take Action

Since many Americans do not have the required discipline to amass significant savings, this year’s America Saves Week encourages individuals to take action. According to Ken McDonnell, director of the American Savings Education Council (ASEC), “The theme of America Saves Week 2012 (set a goal, develop a plan, save automatically) is simple yet highly effective. Consider, according to the 2011 Retirement Confidence Survey, [that] workers who had done a retirement savings need calculation were more likely to be very confident they will achieve their goal (26 percent) as compared with those workers who did not (11 percent). ASEC encourages all Americans to take advantage of this opportunity to set a goal, develop a plan and save automatically.”

Setting an achievable goal is the first step in developing financial discipline. The next step is to create a plan that includes tactics for achieving those preset savings goals. As part of the plan, it is crucial that you find easy ways to save in order to increase the chance of success.

Saving Automatically

So, what does it mean to save automatically, and what resources are available to Americans who want to find easy ways to save? The key to automatic savings is to periodically and consistently move a portion of your income into savings in an amount that does not upset your overall budget. Although the amount saved may seem insignificant in each period, the fact that it is done continually throughout the year is what allows your savings account to grow considerably.

There are many automatic savings plans available, and they are perhaps best thought about in terms of the organizations that offer them. Generally speaking, the three easiest categories to use are those provided by an employer, those provided by a bank, and those “do-it-yourself” programs that require just a little bit of initiative. The following are just a few of the automatic savings programs that can lead to substantial savings over time:

Employer-Assisted Programs

401(k):
The most popular and prevalent of all automatic savings programs is the employer-sponsored 401(k) that deducts automatic contributions from the employee’s paycheck. Many people find taking money from their paycheck an easyway to save because it forces them to live with less discretionary income and reduces the temptation to spend any money left over at the end of the month. Also, because the contributions are made pretax, many employees find that they can afford to save more.

HSA:

Although they are not made available by all employers, a health savings account can be one of the best automatic savings plans available today. It is the only savings plan where money is not subject to taxation when contributed or when distributed. These plans are great for people who are saving for retirement and wish to have some additional resources to cover any unexpected or uninsured medical expenses. Once again, the contributions to HSAs are made pretax and taken from your paycheck before they are spent.

Direct Deposit:

Most companies will allow their employees’ paychecks to be direct deposited into their bank accounts, but this does not mean that the entire check has to go into one account. Some people find it easy to save by having a portion of their paycheck deposited into a separate account or separate bank for savings purposes. Once again, having even a small, seemingly insignificant amount of money taken from your paycheck every period can result in sizable savings over time. Many people find that having their monthly savings taken care of before the bills come due also makes it easier for them to spend less.

Programs from Financial Institutions

Bank Savings Plan: Although banks are interested in helping their clients save, as a deposit institution they also benefit as their clients’ savings accounts grow. For this reason, most banks have several ways for their clients to save automatically. Two common programs are transferring a certain amount from checking to savings each month and rounding up expenses so clients can save the change. If you are interested in these types of automatic savings plans, you should talk to your banker about the different programs that are available.

ATM Reimbursement:

Many online banks and credit unions offer their customers a nearly infinite range of ATM options by reimbursing all withdrawal fees at the end of the month. This presents a savings opportunity: If you withdraw cash normally but use ATMs that charge a small fee, you manage to “forget” about a chunk of money that will be rebated to you at month’s end. Some banks will even let you roll the ATM fee rebate directly into your savings account.

Dollar Cost Averaging:

Some individuals combine an automatic savings plan with an investment strategy. Many financial institutions and brokers can help investors dollar cost average, which entails buying a constant dollar amount of a security on a periodic basis. This strategy works well with buying into funds (mutual funds, bond funds, index funds, and ETFs, for example) as well as single-asset securities. This strategy reduces the risk of overpaying for a particular investment and can reduce the average cost of your investment over time.

Self-Directed Programs

IRA Contributions:

Individuals can create a self-directed savings program that mimics what employers and financial institutions provide. For example, in the absence of a 401(k) plan, individuals can have their IRA contributions drafted from their bank account on a periodic basis to cover their annual contribution by April 15. Simply figure out the total contribution for the year, divide it by the number of periods to be drafted, and then have that amount drawn from the account periodically. This same process can be used to secure your children’s education by funding a custodial account for your children or a Section 529 college savings plan.

Keep the Change:

It is ironic that some people have their banks round up their expenses when it is just as easy for them to collect their change at the end of the day. Empty the coins out of your pockets as soon as you get home, find a safe place to keep them, and just let the pile grow. It is amazing how fast the day’s extra change adds up to real money. When the pile is large enough—a nice problem to have—you can take it to your bank and make a hefty deposit into your savings account.

Keep It Simple

With any of these automatic savings plans, it is paramount that the program be simple and easy to manage and that the deductions not have a significant impact on your ability to meet your financial requirements.

Remember not to get too aggressive in your savings. Saving automatically is not meant to be an austerity measure and shouldn’t be done in amounts that will keep you from covering the monthly expenses. Setting too aggressive a savings target often leads to frustration and excuses to stop saving. Also remember that it is never too late to start saving and that it doesn’t take that long to amass a pretty substantial nest egg. Looking at your empty bank account should not dishearten you or keep you from saving but, instead, motivate you to build the financial discipline to set a goal, make a plan, and start saving automatically.


America Saves Week (americasavesweek.org), is a campaign coordinated by America Saves (americasaves.org), a program of the Consumer Federation of America and the American Savings Educational Council (choosetosave.org) a program of the Employee Benefit Research Institute, two programs focused on promoting saving, debt reduction, and wealth building.

William Ortel contributed research and reporting.

The information contained in this article and from any related communication is for informational and educational purposes only. The information in this article should not be interpreted or used as investment advice. CFA Institute does not recommend or endorse any investment security, product, or strategy or any service, product, or material submitted by or linked to this article by third parties.

Wednesday, February 15, 2012

From the CEO’s Desk: 2011 Perspective

Earnings

We reported a net profit for the fourth quarter of 2011 totaling $431,000. This is the second consecutive quarter of positive earnings, and a significant improvement from the $7.5 million loss reported for the fourth quarter of 2010. A number of key performance areas showed continued improvement. Here are a few highlights:

1. The 30-89 day delinquency rate of our accruing loans is monitored closely, as this ratio provides an indication of potential future problem assets. This ratio has declined steadily since its peak of 4% in 2009, and totaled 1.3% in the fourth quarter of 2011.

2. Our total problem assets continue to decline, and were reduced by an additional $5.3 million in the fourth quarter compared to the third quarter. For 2011, total problem assets have declined by $21 million.

3. Improvements in our local economy, past dues, and problem assets have allowed us to reduce our provision set aside for potential loan losses. In 2011, this provision declined by $6.7 million, and the reduction was a major factor in our positive earnings for both the 3rd and 4th quarters.

While the economic recovery in southeast Michigan continues at a slow pace, the stability in local levels of unemployment as well as property values have been factors in the improved earnings mentioned above. You may review the details of our third quarter results as well as our quarterly comments to investors by accessing the Investor Relations section on our website at www.mbandt.com. Please look for future public announcements concerning our quarterly financial results, and how you can access our investor conference calls for more detailed information on our progress.

Capital

Our capital ratios remain adequate by regulatory standards but less than that required under our regulatory agreement. As a result of our private placement offering that was completed in 2011 and our recent two profitable quarters, capital ratios have improved during each of the last three quarters. In addition, total cash assets, or liquidity, are at historically high levels for our company. Both of these measurements indicate that we have the resources necessary to meet the demands of our loan and deposit customers, and we continue to actively pursue new business.

The Board of Directors continues to carefully evaluate the Company’s options to raise capital in order to strengthen the Company’s balance sheet and meet the requirements of our regulatory agreement. However, in light of continued softness in the market for capital offerings for community banking organizations and the recent improvement in asset quality and earnings, the Board of Directors will evaluate the appropriateness and the timing of any future capital offering based on improved market conditions and the Company’s needs.

Our Commitment to the Communities We Serve:

As Monroe County’s only locally controlled commercial bank, we take our obligation to provide the financial service needs for local residents, businesses, and municipalities seriously. Our focus on customer service and providing innovative products to meet the needs of our customers has allowed us to stand out among others who only pretend to engage in community banking. During 2011, total non-interest bearing deposits increased by 11%.

While a portion of this growth may be a result of the relatively low interest rate environment, it is certainly a reflection of the continued strength of our local market share. Maintaining the position as our market’s “premier” provider of financial services is not an easy task in a highly competitive environment. It is a reflection, however, of the dedication and hard work of our staff, who are all focused on providing value-added services and products for our customers.

Throughout the financial crisis, we have continued to lend money to local businesses and individuals. In fact, our small business loans (less than $250,000) outstanding increased by $5 million during 2011. This is a dramatic improvement compared to 2009 and 2010, which reflected declines in loan balances as the demand for new loans did not exceed the scheduled payment reductions within our commercial loan portfolio.

During the fourth quarter, fees earned from mortgage loans sold into the secondary market doubled compared to the third quarter. We have also been aggressive in finding creative ways to meet the lending needs of our growing commercial customers through products provided by the Small Business Administration (SBA), the United States Department of Agriculture (USDA), and the Michigan Economic Development Corporation (MEDC). During the fourth quarter, we were able to secure the first loan in Monroe County under a new program offered by the MEDC for a local company with opportunities to grow its business. This loan allowed the company to invest in new equipment that will result in new jobs in our area.

Each month we approve, renew, or initiate tens of millions of dollars in loans to local customers. We feel that this improvement in loan activity in 2011 is both a reflection of our own efforts to aggressively pursue new business and of a sign of increased confidence by consumers and businesses alike.


Our strategic plan continues to be focused on improving asset quality, earnings, and capital ratios. While doing so, we are committed to maintaining our presence as a major influence on the quality of life in the communities we serve. Our partnerships with local community organizations, our superior products and services, and our customer-oriented approach to doing business continue to provide value that we feel will ultimately reflect on our shareholders and stakeholders alike.

We thank you for your continued loyalty and support.

Thursday, February 9, 2012

Make Saving Automatic

By Katie Bryan, America Saves Communications Manager


It can be hard to put aside money for savings. But there is an easy way to save money without ever missing it. Make your savings automatic. You can start small and save $20 a week or month or you can try and save more.

How to save automatically

◦Many employers allow you to divide your paycheck into different accounts. Take advantage by putting part of your pay into a savings account.

◦If you get paid in cash, take a small amount to the bank to deposit into a savings account. Many banks make this easy by allowing you to deposit cash directly at an ATM.

Tip: do this the day you get paid. That way you will be less tempted to spend the money.

Why automatic savings works

◦Saving automatically makes it easier to save because your money is saved with each paycheck – you don’t have to think about how much to save or take any additional steps.

◦It’s tempting to spend money when it’s readily available. If you don’t see the money, you are less likely to miss it.

I don’t have enough money to save

Everyone has the ability to save. At America Saves, we say “Start Small, Think Big.” You can start with only $10 a week or month. You have to start somewhere. When you get extra income, you can add that money to your account as well:

◦Put a portion of your tax return money into savings.
◦Put birthday or holiday money into savings.
◦Hold a garage sale and put that money into savings

Over time, your deposits will add up. Even small amounts of savings can help you in the future.

Thursday, February 2, 2012

All You Need Is Love and a Financial Plan!

It's the season of love, but before couples take the next step in their relationship, they should discuss their personal finances. Monroe Bank & Trust reminds customers that taking the next step is not only a marriage of hearts but also a marriage of finances.

It's no secret that people can become blinded by love, but if you stick to a plan, your financial situation doesn't have to be impaired.

An important component of any romantic relationship is a solid financial footing. We suggest that couples discuss the following:

Be mine, or yours? Will you and your spouse-to-be keep finances separated or combine them? Consider individual money styles and find a system that works for you.

Love’s Cost. Calculate costs and discuss how bills will be paid. Both may contribute to the bill payment, but who will physically write the check to pay the bills, monitor the investments and take care of the taxes. Consider setting a date every month to review and discuss finances.

Sharing Credit. It’s important that spouse’s are aware of the others’ credit situation. Marrying a person with bad credit will not drag down your stellar record. However, your other half’s credit will be factored in when applying for joint financing. Knowing ahead of time will help you to plan more strategically.

Cupid's Arrow. Couples should develop a plan to shoot down existing debt, starting with the balances that carry the highest interest rates. Whether or not the pair works as a team or alone, debt must be tackled.

Sweet Savings. Saving as a couple fosters teamwork and is essential in times of financial hardship. Decide how much you want to save as a couple and do it automatically from your paychecks.

Happy Valentine's Day.