Moral of Downturn Story: Piggies Must Be Fed

Technically, it is true that the national savings rate does not include capital gains on investments (stocks, bonds, mutual funds) and real estate. Perhaps people were so elated about the paper gains in their investment portfolios and appreciation in the value of their homes that they became overconfident and stopped saving.

But as we all have seen recently, relying on paper gains can get you into a heap of financial trouble.

What if you can't bleed more equity out of your home to bail yourself out of a financial bind because the house's value has declined or you no longer qualify for a home equity loan or line of credit?

I know some people don't save because they figure that if things get tough, they'll just use their credit cards or borrow against the money built up in their tax advantaged retirement portfolios or just cash out the accounts altogether.

Tapping your home equity (if you even can) and raiding your retirement accounts are strategies of last resort -- not ones that you turn to first or even second. What you need to turn to first is a cash reserve.

I am not -- like many people -- bemoaning the economic downturn. I think in one respect, it's a good thing. It's what this consumer-driven, debt-laden country needed. Far too many people, when their incomes were good and their employment was stable, put off saving. You can't always save enough to stave off every crisis, but even a small rainy-day fund can help you get through some financial storms.

So this is what it takes -- tough economic times -- to remind folks that putting money away isn't just something you know you should do. It's something you desperately need to do.

¿ On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

¿ By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

¿ By e-mail:singletarym@washpost.com.

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