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Don’t let an unstable economy ruin your fiscal plan

TODAY Financial editor Jean Chatzky is receiving more e-mails from readers than ever before, which makes sense given the shaky economy. She takes some time to answer three of the most frequently asked questions.
/ Source: TODAY contributor

It seems as though I've been getting more e-mails from readers than ever before, which makes sense in a shaky economy. But before they start piling up too high, I'd like to take the opportunity to answer a few in this space. Here are answers to three of the most frequently asked questions in my inbox.

Q. My husband and I definitely live beyond our means, paycheck to paycheck. When I try to put money away, it lasts just a few days until my husband will ask to do or buy something and I'll feel bad saying no. I want to save and want to make him and my two daughters happy. Can I do both? — Sarah

A: I want you to listen to me: Saving money is the very best thing you can do for your husband and family. It buys you crucial things, not just college for the girls and eventual retirement for you and your husband, but the ability to make choices in medical care if you have a health emergency. Without savings, you have no options.

Your husband needs to understand this as much as you do. Right now, your relationship with him is on shaky ground because you are parenting him financially as much as you are parenting your kids. Sarah, this cannot continue.Here's what I want you to do. Set up three bank accounts, one for the house, one for you and one for him. Paychecks go into the house account and on the very same day, I want you to transfer money into a savings account. Start small, with $100 or whatever you think you can manage. If that feels easy, increase it the next month. Tell yourself those savings are hands-off. Also transfer a small sum into an account to be used at your discretion and another to be used at his. If he wants to buy something, he can use his money rather than asking you. As for the girls, this is what allowances are for: They can save for the things they want and you can put an end to the whining.

Q. I get paid monthly from my job. I spend a majority of my budget the first week of the month right after I get paid and then have to scrimp and save for the rest of the month until I get paid again. This cycle has been going on for months. How do I make my budget last all month? — Amy

A: What you're describing is a problem every person (including me) who has a job where income rolls in sporadically faces. What you're going to do from now on is pay yourself weekly. Deposit your monthly paycheck into your savings account. Every week (you can do this automatically or online) transfer one-quarter of the money into checking. Then, make a deal with yourself that the money in savings is not to be touched. You may find as you go through the process that you have to tweak it a little bit based on things like when your rent, mortgage or car payments are due.

The other thing I want you to do is to plan your savings. You know what's possible now, having lived frugally three weeks out of each month. Decide upfront what percentage of the paycheck is reasonable to save (if you can hit 10 percent, you're doing extremely well) and transfer that money into a long-term savings account, a money market or an IRA before you have the chance to spend a dime.

Q. My husband and I had our first son a year ago, and we are stumped on what to do to start saving for his college. My husband is in the Navy, and I am a stay-at-home mom. In 2007, our adjusted gross income was about $90,000. We both make the maximum contribution to our Roth IRAs and save $1,000 a month in a money market account. Although we know we can't foot the entire bill for his college education, we would like to be able to help some. Which products would be best for us? — ShaynaA: What many people don't understand about the Roth IRA is that in addition to being a great way to save for retirement, it's also an important college savings tool. One of the things I like so much about the Roth (besides the fact that your contributions grow tax-free forever and you don't have to pay taxes on them when you pull the money out) is that you can make withdrawals, without penalty, for things like education and buying your first home. So when your child gets to college 18 years from now, you can look at the balance in that Roth and decide if you want to use some of the money for education rather than retirement.As far as other options, I'd look at the Coverdell Education Savings Account and the 529 College Savings Plan. The Coverdell works like an IRA. At your income level, you can contribute up to $2,000 annually if your modified adjusted gross is less than $95,000 as a single tax filer (or married filing separate), or $190,000 to $220,000 as a married couple filing jointly. You can open a Coverdell at pretty much any brokerage firm, but I'd use the same one that houses your Roth for sanity's sake. Then you invest the money as you choose. As for a 529 plan, you can contribute substantially more there, but plans vary by state. If you want to read more about your state's options, I'd go to savingforcollege.com, a terrific Web site that rates plans.

With reporting by Arielle McGowen.

Jean Chatzky is an editor-at-large at Money Magazine and serves as AOL’s official Money Coach. She is the personal finance editor for NBC’s “Today Show” and is also a columnist for Life Magazine. She is the author of four books, including 2004’s “Pay it Down! From Debt to Wealth on $10 a Day” (Portfolio). To find out more, visit her Web site, www.jeanchatzky.com.