Last week’s post described six ways to save money: pay yourself
first, collect coins, complete a savings challenge, continue to pay a loan or
bill, break costly habits, and bank a windfall. Below are six more successful
saving strategies to “find” money to save to reach your financial goals:
Save- Decide that, for a month or two, you’ll buy only absolute
necessities and save any money that remains after paying bills. At the end of
the crash savings time period, treat yourself and buy the item(s) that you were
saving for. Then resume your “normal” spending habits or set a new crash
a “Club” Savings Plan- Start a structured savings plan to
save money over the course of a year for holiday or vacation expenses. Some
banks and many credit unions still offer them. Unlike the “coupon books” of
years ago, weekly savings deposits are often transferred electronically from a
checking or savings account.
Your “Extra” Paychecks- Mark all your paydays for 2019
on a calendar. If you are paid bi-weekly, in two months of the year, you will
receive three paychecks. If you are paid weekly, there will be four months with
five paychecks. Anticipate these months in advance and plan to save part of the
Excess Expense Reimbursement Money- Review your
employer’s reimbursement policy. If you get a fixed sum for business travel
expenses, instead of having to collect receipts, and spend less than the per
diem amount, save the difference. Ditto for mileage reimbursement for using a
personal car for business.
Interest and Dividends Automatically-Arrange to
have dividends and capital gains on mutual funds reinvested to purchase
additional shares rather than receiving a check for a small amount and spending
it. This is a painless way to increase personal savings and, over the long
term, the results can be spectacular.
in a Tax-Deferred Retirement Plan- Reduce your
salary via payroll deduction to save for retirement and aim to take maximum
advantage of employer matching. Money contributed to a 401(k), 403(b), or
similar retirement savings plan and earnings on these funds grow tax-deferred
until withdrawn in later life.
The last week in February every year is designated as America
Saves Week. Like weight loss (dieting), saving money is hard to start, even
harder to maintain, and requires patience and discipline. When you achieve your
financial goals, however, the results are so worth it. Below are six
time-tested ways to stash more cash:
Yourself First- Treat savings like an important household bill (e.g., loan
payment or rent). Set aside a part of each paycheck, even if it is only a small
amount, and leave it there. If possible, arrange to have money transferred to
savings and investment accounts automatically.
Coins- Put loose change into a can or jar. When the container is full,
deposit the money into a savings account. Set aside $1 a day, plus loose
change, and you should have about $50 a month, or $600 a year, saved. Save $2 a
day, plus loose change, and you should have about $1,000.
a Savings Challenge- Pick a Challenge
that matches your time frame and savings goal such as the 30 Day $100 Savings Challenge or the 50 Week $2,500 Savings Challenge. Savings challenges gradually ramp
up savings deposits over time and provide motivation and structure.
to Pay a Loan or Bill- Make payments to savings or investment accounts with money that
is freed up when loan payments end or an expense, such as child care, ends. The
rationale behind this savings method is that you are already accustomed to the
monthly payment so “redirecting” it will not pinch your cash flow.
Costly Habits- Track your spending for a month or two and pick a few places
where spending can be cut back or cut out to “find” money to save. For example,
brown-bagging lunch two or three days per week could save hundreds of dollars
over the course of a year.
a Windfall- Save all or part of large, infrequent expected or unexpected
sums of money. Examples of common financial windfalls include tax refunds,
inheritances, settlements, awards and prizes, retroactive pay increases, and
year-end bonuses at work.
Are you expecting
an income tax refund? You are not alone.In
2016, the average tax refund
amount was $2,782 and the IRS issued over $302 billion in refunds. Use your
refund wisely! Consider the following ideas:
¨Save for Emergencies- Aim to set aside at least 3 to 6 months
expenses in a money market fund or bank account.This is your “fall back fund” in the event of
unemployment or unanticipated expenses.
¨Pay Down Debt- The more debt you repay, the less interest
you will owe.Paying down an 18% credit
card balance is like earning 18% on an investment- plus it is a guaranteed return
¨Start an IRA- A one-time $3,000 tax refund invested in an
IRA containing a stock index mutual fund with an average 8% return will be
worth almost $31,000 in 30 years.A
$3,000 tax refund invested every year
for 30 years will be worth over $370,000.
¨Invest in Mutual Funds- Most mutual funds allow investors to open an
account with $3,000 or less.Choose a
fund with good historical performance, low expenses, and an objective that
matches your investment goals.
¨Improve Your Skills- Use your refund to take courses or attend
conferences that will make you a more skilled and valuable employee. Economists
refer to this as “building your human capital.”
¨Review Your Tax Withholding- A large refund indicates that your tax
withholding is incorrect (over-withholding).Hire an accountant or financial planner to review your finances or use
the online IRS Withholding Calculator.
A home is the largest purchase that most people ever make.
Many decisions have to be made during the home-buying process in unfamiliar
areas (e.g., mortgages and home sale contracts). Below are five tips for
for Financing- Take the time to shop
for the best terms on a mortgage. It could save tens of thousands of dollars
over time. Follow the “Rule of Three” and compare at least three different
lenders as well as providers of every required service (e.g., realtor, mortgage
lender, home inspector, and attorney).
Borrowing Limits- Consider the
guideline that homeowners should spend no more than 2 to 2.5 times their annual
income for a home. Most lenders also use some variation of the “28/36 Rule.”
This means that PITI (principal, interest, taxes, and insurance) cannot exceed
28% of gross monthly income and PITI, plus outstanding consumer debt (e.g.,
credit card payments), cannot exceed 36% of gross income.
Example: A couple earning $60,000 annually, or $5,000 a month,
would qualify for a mortgage with a $1,400 monthly PITI payment ($5,000 x .28)
if they had no other debt and a $1,200 monthly payment if they had $600 of
monthly consumer debt payments (5,000 x .36 = $1,800 - $600 = $1,200).
Get Help- Inquire about loan programs for first time buyers and
no- or low- down payment VA mortgages that are available to active duty service
members and military veterans.
Be Patient- It may take a year or more to accumulate enough cash
to qualify for a mortgage on a starter home. Do not expect to purchase a large
house with upscale features the first time around. You’ll also need to save for
closing costs, which can amount to several thousand dollars.
Pre-Approved- Before shopping for a
house, get pre-approved. This means
that a lender has verified your income, checked your credit, and agreed in
writing to provide a mortgage up to a certain amount.