Successful Saving Tips to Launch You into Financial Freedom
If you’ve been looking for successful saving tips, you’ve come to the right place. Do you know how to maximize a 401K plan? Do you have an emergency fund in place? Does the idea of paying yourself first scare you? No matter what your current financial position is, there are many successful saving tips that will assist you in meeting your goals. Beginning savers will want to establish emergency savings accounts and pay off debt. Intermediate savers will want to look into CDs and mutual funds. Advanced savers will look at ways to diversify their investments.
Getting Ready to Start Saving
Before beginning any sort of saving attempts, it’s important to take stock of where you are at financially. Sit down and come up with a list of all of your income sources and all of your expenses. Ideally, your income will exceed your expenses. You’re going to mark either with a highlighter or a pen any expenses that are fixed. i.e. rent, cable, insurance, etc. You also will need to distinguish between living expenses and personal expenses. Once you have a general overview of your fnances, you can then begin to plan how you will find money for your savings account. While you cannot trim off of your fixed expenses, perhaps you can find ways to cut back on living expenses and personal expenses. For example, have you thought about buying produce from a farmers market? Often, you can save money on groceries this way (especially if you tend to buy organic). By only having lights on in the room you are in (this brings back memories of my father chiding us as kids, “Do you think we have stock in the electric company? Turn off that light if you’re not in that room”), unplugging appliances not in use, and learning peak-use times for appliances, you can cut back on your electric bill.
Successful Saving Tip for All Levels: Pay Yourself First!
It’s Friday, the first of the month, or the day your client check has come in. What do you do first? A successful saver’s answer to this question will always be “I pay myself.” Don’t rush out to buy new shoes, a stereo, or groceries, instead, transfer a pre-determined amount immediately into your savings account - and don’t touch it! Most financial planners recommend saving at least 10% of every check that comes in. If you can’t do 10%, try 5%. The important thing is that you get into the habit of putting money away immediately.
Beginner’s Saving Tip 1: Establish an Emergency Fund
If you do not already have an emergency fund, why not? Do you realize that by taking time to establish an emergency fund, you can prevent financial ruin, stave off the accumulation of more debt, and give yourself a sense of financial stability? Even if you are in debt, I’m going to give you the same recommendation Dave Ramsey gives readers of his books: Save $1,000 before you even think about trying to pay off your debt. Otherwise, should you have a flat tire, an unexpected emergency room visit, or a plumbing disaster, you will only incur more debt. Start with $1,000. Once you have that, and you are out of debt, aim to save between three and six months worth of living expenses. If you have to draw from your emergency fund, pay it back as soon as possible.
Beginner’s Saving Tip 2: Pay Off Debt
If you are drowning in debt, it is impossible to meet your savings goals. You already know that paying your debt off will save you money in the long run because you won’t be paying interest on those credit cards. While many financial gurus agree that you should pay off your debts, they don’t agree on what’s more important: paying off debt or saving money. Imagine for a moment that you didn’t have that $60 a month payment on your credit card or the $150 a month payment on your department store card. That’s money that could be used to establish your emergency fund, put into a long-term savings or retirement account, or even saved for a short term goal like a vacation. Do everything in your power to get out of debt quickly and efficiently.
Beginner’s Saving Tip 3: Budget All Income Every Month
Successful savers know exactly how every penny of their income will be spent. This successful saving tip suggests that if you are serious about saving money, you need to know how you will spend your money. At the beginning of each month, sit down again and determine what you expect to bring in that month. This type of budgeting works whether you have variable income or fixed income. Set aside 5%-10% of that money for your savings. Next, account for all fixed expenses, then living expenses, then personal expenses. Once you’ve done that, look at what is left over? If you have debt, use that money to make an extra payment to one of your debtors. If you have paid off your debt, tuck that money away in savings.
What? You don’t have any money left over - or your expenses are more than your income? There is a problem. First, look at your personal expenses. Are there items that are not necessary or that can be put off to another month? Next, look at your living expenses that are not fixed. Can you cut corners anywhere? If you’ve already cut your budget as far as it will go, then you need to do the following:
- Look for income opportunities: Is there opportunity for overtime at work? Do you have a special skill or talent that could help bring in extra cash? Can you host a garage sale? Can you move from part time to full time work? Can you operate a consulting business on the side? If your spouse does not work, can he or she pick up a part-time job or freelance?
- Call creditors and loan companies: If you have legitimate economic hardship, creditors and loan companies may be able to work with you.
- Is that cable really necessary? Look one more time at your expenses. Anything that does not preserve your life or pay back debt incurred is not necessary. Look into cutting it out of your budget.
When you’re done with your budgeting, your income and your expenses should be equal.
Intermediate Saving Tip 1: Make Your Money Work for You
Now that you have an emergency fund, you’re paying down your debts, and budgeting your income each month is second-nature to you, there is a very important successful saving tip you should be familiar with: Make your money do the dirty work - make it work for you. Money you make without doing work is called passive income. The following are sources of passive income from your own money:
- Savings Accounts - You earn a percentage of interest each month. A savings account is the least risky form of making your money work for you - but it also brings the least amount of return.
- Certificates of Deposits or CDs - A CD is a short-term saving option that allows you to earn a fixed percentage (between 1.5% and 3%) on your investment over a given amount of time - usually between 3 months to 5 years. Ideally, intermediate investors should “ladder” their CDs meaning you will have a CD come to maturity every three months or so. The longer the term of the CD, the more money you will make.
- Mutual Funds - A mutual fund is for the longer term. Mutual funds spread your money out in stocks and bonds. Mutual funds also carry considerably lower risk than other forms of investing money.
- Investments - These can be low risk or high risk. Whenever you’re looking to invest your money remember this: the higher the risk the higher the returns. Those new to investing should stick with low-risk investments for the long-term.
- Real Estate - Purchasing investment properties can help bring in passive income in the form of rent or selling the property for a higher price. In the current economy, real estate is often considered to be a risky investment.
Intermediate Saving Tip 2: Consult with a Financial Planner
Once you have a bit of money to work with, you will want to consult with a financial planner. A financial planner is a great resource - whether or not you’re working with a lot of money. Financial planners can help you to clarify your savings goals and they can help you determine how best to manage your finances should you receive a windfall amount. If you’re having a hard time navigating all the different options for making your money work for you, a good planner can help you get started.
Intermediate Saving Tip 3: Distinguish between Short-Term, Mid-Term, and Long-Term Savings Goals
It’s important to have saving goals to help you be motivated to save your money. You should have goals in each tier - short-term, mid-term, and long-term savings. Do you want to go on a vacation? When? How much money will you need for retirement? Do you want to purchase a house? By being clear about what you want to save for, you can be a more successful saver.
Advanced Saving Tip 1: Diversify Your Investments
A successful saving tip that always works is to diversify investments. While “safe” investments are great for the long-term, you may want to have a portion of the funds you’ve earmarked for savings work for you more aggressively. It’s not enough to have a savings account, and CDs and Bonds will only get you so far when it comes to making your money grow. Instead, you will want to work to ensure that your investments are balanced between the less-risky and more risky investment options. Even mutual funds that seem to be safe can carry risk if the stock market falls. Cover your assets and diversify.
Advanced Saving Tip 2: Do NOT Gamble with Your Retirement Savings
There’s an exception to the “diversify” rule. Do not, not ever, gamble with your retirement savings. Never sell retirement stocks to finance a risky venture. Instead, maximize your IRA account. Also, be aware that you should do more than just maximize your IRA accounts. You should also look into long-term stable investments for retirement. Be sure that whatever investments you purchase will outlast inflation rates. Don’t count on social security to cover your retirement. There are horror stories - elderly who have become homeless, who have to live with their adult children, or whom receive food stamps all because they used their retirement funds to invest in a high risk venture.
Advanced Saving Tip 3: Earn Interest in Your Checking Account
The final successful saving tip to follow is finding a checking account that will allow you to earn interest on your money. There are many different banks - both online and in traditional brick and morter buildings - that offer checking accounts that earn interest. It’s important to do your homework. Research the requirements for such banks, including the minimum balance necessary, the maximum number of withdrawals, and the interest rates before opening an account. By taking advantage of interest-bearing checking accounts, you can maximize your resources.
Bach, D. (2002) Smart Women Finish Rich. New York: Crown Business.
Kiyosaki, R. (2010) Rich Dad Poor Dad. New York: Business Plus.
Orman, S. (2006) 9 Steps to Financial Freedom. New York: Three Rivers Press.
Ramsey, D. (2009) The Total Money Makeover. New York: Thomas Nelson.
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