Americans’ saving rate has climbed to the highest level in a decade. According to usdebtclock.org, we are saving approximately $54,000 per minute. But that is not all. We are paying down debt at a rate of $100,000 per minute!

Consumers and businesses are deleveraging (paying down debt) while keeping expenses in check. Sadly, the federal government is going in the other direction. The federal government is borrowing money at an unprecedented pace. Deficits skyrocket as spending increases. The rate of federal government spending is now at $5 million per minute. Multiply that by 60 minutes in an hour… 24 hours a day… 365 days in a year; you’re talking real money! This year’s deficit is expected to come in at $1.4 trillion. Our national debt is now $11.9 trillion. That is equal to $38,000 per citizen, or $86,000 per taxpayer.

With that in mind, we can’t rely on the federal government. We need to protect ourselves financially. How will you manage your money more successfully? Should you rebuild your retirement accounts? Contribute to your kids’ college funds? Buy a new home? Increase your rainy day fund? Which should you do first, and in what order?

There never seems to be enough savings to go around. Financial experts recommend saving 10%, or up to 20% of your income. Easier said than done. Even with our new found frugality, few are saving at this rate. David Laibson, a Harvard economist estimates that about 10% of Americans save too much; 30% have good savings habits, while the rest spend like there is no tomorrow.

Rebuilding your financial infrastructure takes planning, and implementation of new habits. First, reduce your consumer debt. Some credit cards can charge over 20% interest. Every dollar used to pay down debt saves you 20% in interest. Paying down debt is a guaranteed return on your money.

The next step is building a rainy day fund. Emergencies do come up, often when we can least afford them. The roof may leak, the refrigerator breaks down, the car needs a new transmission, etc. An emergency fund should be equal to three to six months of income. In these times when the unemployment rate is at 10%, an emergency fund equal to six months of income is prudent.

After your rainy day fund, consider saving for future fun. By saving a little each paycheck, you can have money for clothes, vacations, a new car, or (even a new big screen HD, 1080P TV). Believe it or not, the most common budget buster is clothes. Most people don’t budget for the fun stuff. They end up using credit cards and piling up the debt. So, establish a fun fund so you can do fun things without using your credit.

Saving for retirement is problematic. It requires giving up something today for a future benefit. This kind of delayed gratification requires discipline. To help, practice creative visualization. Picture yourself in retirement, living the life you have always wanted… playing golf… traveling… or spending time with your grandchildren. Being financially secure enough to be able to take care of yourself, without being a burden, is a great achievement.

Retirement plans can help you put more gold in your golden years. They also provide significant tax savings. With 401ks and other pension programs, you use pre-tax dollars to fund the plan. Your contributions reduce your income tax burden saving you taxes now. The amount of savings is equivalent to your tax bracket. For example, for every $10,000 in contributions to your 401k, you save $2,500 in a 25% tax bracket. Earnings grow tax deferred, (no current taxes are due on your earnings). Only when you begin taking withdrawals, are they subject to ordinary income tax. Many employers provide for a match equal to a percentage of your contribution, sweetening the pot further. A 3% match on $10,000 would increase your 401k by $13,000 per year. When you consider the tax savings of $2,500 (in the 25 percent tax bracket), your cost is $7,500, while your account grows by $13,000.

Converting your traditional IRA to a Roth IRA is worth considering. Roth IRA contributions are not tax deductible like traditional IRAs, but grow tax free, and produce tax-free income. Consult with your wealth manager about the possible advantages of converting your IRA to a Roth IRA.

If you are just starting out in life, make savings a habit. Put away the same amount each paycheck. Increase your savings as your income grows. Start by putting aside money each week towards your emergency fund, and your fun account. If you have unsecured debt, pay that off first. Start slowly with your retirement account and build as you go.

If you have a family, consider saving for college. If your kids are young, all the better… you have more time for the account to grow. Coordinating your retirement savings with your college plan makes perfect sense. If you have fully funded an emergency account and a fun account, consider splitting your savings between your retirement fund and a 529 College Savings Plan.

If you are an empty nester, focus on retirement. For the years 2009 and 2010, you can make contributions up to $16,500 per year towards your 401k. If you are over age 50, that amount jumps to $22,000 per year. Contribute as much as you can. Look into purchasing long-term care insurance to protect your nest egg. The younger you are, the lower the premiums.

If retired, you will need a different plan. Up to now, it was all about accumulation. Now, it is all about income. Start by making sure you are receiving the maximum amount of social security retirement benefits. This is more difficult than it sounds. Visiting with a professional wealth manager may help you earn more. Consider rearranging your portfolio. Think of your portfolio as being divided between short term (0 – 5 years), medium term (5 – 10 years), and long term (10+ years). If your financial situation is sound, you may consider contributing to your grandchildren’s 529 College Savings Plan.

Counting on the debt-ridden federal government for your financial security is a dangerous proposition. It’s up to us. Self reliance and preparation is the way to financial security.

Please feel free to pass this on to anyone you feel might benefit. We appreciate all of your referrals.

Please note: If you should make withdrawals from your IRA or your 401k prior to the age of 59½, you may be subject to taxes and penalties.