10 sweet saving tips for 2011

It might be the right year for you to start saving money for a variety of reasons -- emergencies, retirement, health care or a possible job loss. If you're already saving money, 2011 may be the year to revisit the return on your checking, savings and other accounts.

These tips will get you moving in the right direction.

Tip #1 Start an emergency savings account

The biggest barrier to saving is not being in the habit of saving. The best way to get in the habit is to pay yourself first by having money directly deposited from your paycheck or even your checking account into a dedicated emergency savings account. This can be done concurrently with other goals such as paying down debt or saving for retirement, not instead of those goals. You won't miss what you don't see, and putting your savings on autopilot is a great way to reinforce the savings habit when unplanned expenses inevitably come along and chew a hole in what you've saved. You're only one paycheck away from beginning to replenish your savings balance.

Tip #2 Get a high-yield savings account

OK, maybe these days "high-yield savings account" is a contradiction in terms, but there are three requirements when looking for a place to put your rainy day fund. It must be liquid, meaning you can get to the money whenever you need it. It must be free of investment risk. And you must earn a return that preserves your buying power against the erosive effect of inflation.

The top-yielding savings accounts and money market deposit accounts insured by the Federal Deposit Insurance Corp. meet all three of these requirements. And they can be obtained with little or no minimum deposit, and are available to consumers anywhere in the 50 states. Check Bankrate.com for the highest-yielding, FDIC-insured savings accounts available nationwide.

Tip #3 Find a free checking account

Having the wrong checking account can take hundreds of hard-earned dollars out of your pocket every year. The average interest-bearing checking account charges a monthly service fee of $13.04 and requires maintaining a balance of more than $3,800 at a near-zero rate of interest to avoid fees.

Instead, look for one of the many accounts that charge no monthly service fees or per-transaction fees, and don't require a minimum balance. Bankrate.com found that 65 percent of large banks and thrifts in markets around the country still offer a noninterest, free checking account. An additional 23 percent offer an account that can become free by signing up for direct deposit or using a debit card a handful of times per month.

Although large banks are jumping off the free-checking bandwagon, free checking accounts can still be found at smaller community banks, credit unions and online banks. Check out Bankrate.com's tips on avoiding fees and find a free checking account that meets your needs.

Tip #4 Track your monthly spending

People hate to use the "B" word -- budgeting. Call it what you want, but you do need to get a handle on your spending. Doing so does two things. It helps you determine where you can cut back and helps maximize your savings efforts.

Begin by tracking your spending for a two-month period. Then take this information and build a realistic monthly budget (or "spending plan," if you prefer). Finally, track all of your monthly expenses, everything from the $1 tip to the grocery store bag boy to the monthly mortgage payment. At the month's end, tally up your spending against the plan and see where you did well and where you didn't. If you spent less than planned, move the excess into your high-yield savings account or use it to pay down debt.

Tip #5 Pay down high-interest credit card debt

For many households, the best return on your money is to pay down credit card debt. Whether carrying balances at 12 percent or 22 percent, credit card debt is typically the costliest debt households have. Plowing excess cash into repayment of credit card debt is a double-digit, risk-free return because it reduces the outstanding balance and the resulting interest charges. This is a sound move now as credit card rates are likely to move in one direction -- higher -- over the next few years.

When prioritizing your debt repayment, start with the highest-rate credit card first and focus on paying off the balances in descending order. Use Bankrate.com's debt pay-down calculator to develop a custom, month-by-month plan on repaying your debt.

Tip #6 Begin or boost contributions for retirement

The burden of supporting ourselves in retirement is increasingly on our shoulders. The first introduction to retirement savings often comes through a workplace retirement plan such as a 401(k). Contributions not only reduce your taxable income now, but your investment goes to work immediately and grows without the drag from taxes until you begin withdrawals in retirement. The regular contributions made with each paycheck represent the best example of dollar-cost averaging, buying fewer shares when values are high but more shares when prices fall. Any employer contribution, even at a reduced rate, still represents free money, so be sure to contribute at least enough to maximize any employer contribution.

If your employer offers a Roth 401(k), your contributions are made with after-tax dollars but withdrawals in retirement will not be dinged by taxes at all, allowing you to keep your entire nest egg.

Tip #7 Make an IRA contribution

If you or your spouse has earned income, then you are eligible to contribute to an Individual Retirement Account. Those under age 50 can contribute a maximum of $5,000 and those 50 and older can contribute up to $6,000, thanks to permissible catch-up contributions.

With an IRA, you can choose investments that aren't available in your workplace retirement plan, such as commodities, individual stocks or certificates of deposit, giving you access to investment options that result in a more diversified portfolio.

A traditional IRA offers tax-deferred savings while a Roth IRA offers tax-free savings for retirement. But Roth IRA contributions are limited based on household income.

Tip #8 Rebalance your investments

It has been a positive year for stocks and bonds, with many emerging markets and commodities off to the races. Meanwhile, cash yields are hovering near zero. Given this variation in returns, your portfolio may look much different than it did at the beginning of the year. Outsized performance by some asset classes can distort your asset allocation widely from its intended target, so rebalancing your investments back in line with your goals and risk tolerance is a prudent step.

Rebalancing also enforces the discipline of buying low and selling high, as you'll be shifting some money out of the assets that have performed well and into those that have lagged on a relative basis. This also helps reduce the susceptibility of your portfolio to a sharp correction in the markets.

Rebalancing is a good habit to undertake each year, but it is particularly important in a year of volatile movements or disparate returns between asset classes.

Tip #9 Sign up for a flexible spending account

Almost everyone incurs costs for medicine, prescriptions and health insurance copayments. Perhaps you also have dependent-care expenses while you're working, or you have to pay commuting costs to get to work. If your employer offers a flexible spending account as part of your benefits, consider signing up.

A flexible spending account, or FSA, allows you to pay for medical, dependent care or transportation costs with pretax dollars set aside with every paycheck. By paying with pretax dollars instead of after-tax dollars, you're essentially getting a discount on all these expenses you regularly incur. How big a discount? It depends on your marginal tax bracket, but those in the 15 percent bracket are saving 15 percent by paying with pretax money instead of money that has already been taxed. Contact your employee benefits department to get specific information.

Tip #10 Consider a rewards credit card

Do you always pay your credit card balance in full? If so, you're the ideal candidate for a rewards credit card. With a rewards credit card, you are compensated in the form of cash back, airline miles or one of many other methods for everyday purchases you make. Identify what type of reward is most appealing to you and compare credit card offers based on what percentage of your purchases are paid out in rewards.

A 1 percent reward ratio is typical, but many credit cards exist that have higher payouts for certain categories of spending or for spending above a certain threshold. Finding the card that best fits your spending pattern can put hundreds of dollars per year in your pocket for expenses you'd incur anyway.

The keys to success are always paying the balance in full and resisting the urge to overspend just for the sake of the reward. Check out Bankrate.com to find the best card for you.

-BankRate-