Saving money may seem like an unattainable goal in this difficult
economy, but here are tips that you can turn into money in the bank.
Plus, post your smartest tips for spending less below. We'll publish
the best ideas in a future issue of PARADE.
Put away before you pay
Make a “mandatory” monthly payment into a savings or investment account. Treat it like any other bill you must pay. Set a figure you can afford and consider it an obligation to you and your family. “If you can, have your employer directly deposit $200 to $300 a month from your paycheck into a brokerage account or mutual fund,” says Aaron Patzer, CEO of Mint.com, an online personal savings and budgeting service. “If $200 a month in a Standard & Poor’s measured fund performs as it has over the past 20 years, you’ll have around $170,000 in savings in two decades.”
Invest in a piggy bank
“Spend only paper currency,” advises Ric Edelman, who hosts a personal-finance show on ABC Radio. “By saving all the change you receive every day, you’ll probably accumulate $20 to $50 each month, without even trying.”
Erase credit-card debt
Many families spend more than $1000 a year on credit-card interest. You can avoid that pain by wiping out your credit-card debt with every payment. “The average American carries $8500 in credit-card debt,” says Patzer. “At a minimum payment of $100 a month, it’ll take seven years—and $4257 in finance charges—before you’re in the clear. At those rates, it’s not worth it to let credit-card debt pile up.”
If you can’t pay it off...
“Make the minimum payment only on the cards with the lowest interest rates,” says Edelman. “Then take any leftover money and make the largest possible monthly payment for the one card that charges you the highest interest. This is the fastest way to get rid of your more-expensive debt.” You also can consider transferring your balance to a lower-interest card. “Many credit cards offer 4.99% on balance transfers,” says Patzer. “Shop around for the best deal.”
Avoid impulse buys
Eliminate purchases that might cause financial duress. If you want to buy something extravagant that will stretch your budget, first take seven days to think it over. “Or better yet,” Edelman says, “don’t carry your credit cards at all. This eliminates unnecessary impulse buys. You can always come back next week if you really want the item.”
Start a “house money” fund
Take any tax refund, overtime pay, gift money, bonus or rebate money you receive and immediately commit it to a high-yield savings account or an IRA that you won’t or can’t touch. “Avoid the temptation to spend these dollars,” says Patzer. “This is ‘found money’ that can work for you. You never had it in your hands, so you won’t miss it when you invest it.”
CREATE AN EMERGENCY FUND
Experts recommend that you create a fund to cover living expenses for at least three months.
• Segregate your savings. Open a bank account solely for your emergency fund. Keep the money in a high-yield (currently 2%-plus) savings or money-market fund.
• Make small money grow. When you get change, put singles and coins into a jar. Ask cashiers for small amounts of cash back with every debit-card purchase, and put the difference into your jar. Then, once a month, deposit the contents into your fund.
• Keep paying bills…to yourself. After you’ve paid off a big debt, such as a loan or a child’s tuition, keep making the payments—into your fund.
• Reinvest in higher-yield accounts. Move a month’s worth of savings into a one-month certificate of deposit (CD). When it matures, roll the principal and the interest into another one-month CD. Meanwhile, keep making regular payments to your fund. Eventually, you’ll build up another month of living expenses that can be used to invest in a two- or three-month CD, and so on.