10 Easy Tips for Saving Money
While most people realize that saving money is critical, many don’t know how to save.
Following is a short list of suggested “how to” saving techniques. Before getting started, go through the exercise of tracking your expenses so that you can know what you currently spend and where. This will give you a clear picture of how much you are able to save.
- Save at least enough in your employer’s 401(k) plan to receive the maximum matching contribution. The employer match is truly free money and counts towards the goal.
- If eligible, and the income tax strategy makes sense, fund Roth IRAs. As a next step, if you can, save the maximum that your employer’s 401(k) plan allows.
- If your employer allows, set up an automatic deduction from your paycheck that goes straight to your savings account at your local bank, credit union, or mutual fund for additional savings beyond the retirement accounts. This would be a good way to acquire down payments for big ticket items.
- Set up an IRA at an institution that accepts monthly deposits for an amount that fits your budget.
- Speaking of budgets, create one and make it reasonable and achievable. A budget can create discipline much like an investment policy statement or withdrawal policy statement by reinforcing your goals. A budget is also a precursor to establishing a retirement savings policy statement.
- If you want to buy a big ticket item, try to save a larger down payment to reduce the monthly debt payments. Establish a dollar goal and a timetable that you can meet. Saving for a down payment also creates discipline and satisfaction when the goal is met.
- If you prefer prepaying your home mortgage with raises and bonuses, that works as well. This type of debt reduction is the same as saving; it’s just on the other side of the balance sheet.
- Work towards the 15 percent savings rate and don’t stop until you have done so. When you have met that goal, consider whether increasing your savings rate to 20 percent is within your grasp.
- Create a "savings ritual" for children and grandchildren.
- Finally, whenever a savings goal is met, the entire savings process should be reviewed to make sure priorities are reset and ranked to avoid consumption by default.
These simple tips cover the “how to” and can be implemented with ease by most people. Depending on your income/expense situation and your personal goals, “how much” to save may be a complex formula and best prepared with a qualified financial planner.
Copper Leaf Financials’ team of experienced financial planners work with clients to create a customized strategy and roadmap that defines the “how much” and “how to” depending on their life circumstances and goals.
John W. Davis and Bret L. Hodgdon, partners of Copper Leaf Financial.
Tips published by James A. Shambo, CPA/PFS on 8/24/15 in the Journal of Accountancy.
See also Financial Tips for Life 101