Start Saving Now, Start Saving More
Research shows that today's Americans generally don't save enough. That means too many Americans aren't prepared for unexpected expenses and hardship. Too often, they rely on credit cards or other loans to get them through tough times, which usually only makes things worse. The good news is, with a little discipline, it's not that difficult to start putting money away for rainy days. Here are a few tips from the National Foundation of Credit Counseling (NFCC) to help you get started.
Track your expenses. One big obstacle to saving money is not knowing where you money really goes. Start keeping track. Write down everything you spend for a month, from candy bars to car payments. You might surprised at what you discover — including a few not-too-painful ways to start cutting back.
Create a budget. Now that you know where your money's going, start making a plan to be more careful with your income and expenses. Start by accounting for all your sources of income. Be sure to incorporate all three expense categories: fixed expenses (e.g., mortgage/rent, auto loans, utilities), variable expenses (e.g., credit cards, groceries, entertainment), and periodic expenses, (e.g., property taxes, home repair, car maintenance). Now add a new category: savings. Start setting aside a certain amount each month, right off the top.
Customize your budget to fit your lifestyle. Putting aside money for savings doesn't necessarily mean you have to make drastic changes. Think in terms of cutting back, not cutting out. If you cut out too much, it will be harder to stick to the plan. Like going on a crash diet, it's not healthy in the long run. Try packing a lunch for work a couple of days a week instead of eating out every day. Make sure your cable TV, internet, and phone package is right for you. Consider cutting the cable and trying cheaper streaming services. Do you still need that land line? You might be surprised at the things you find you can live without.
Make it a family plan. Make sure everybody in your household is on board with the new approach. Look for ways to make saving money fun, like prizes or rewards for successful efforts. Find a savings goal, such as a family vacation or dinner at a favorite restaurant. With everyone pulling in the same direction, your results will better and the rewards greater.
Find the right savings vehicle(s) for you. Don't just stick the extra money into your checking account and call it "savings." Keep it separate, and look for the right kind of account to meet your needs. Consider splitting money between accounts that are liquid (such as a standard savings or money market account) and accounts that are intended for long-term savings (such as certificates of deposit). Explore liquid money market accounts online to find higher interest rates. Consider using automatic deposit, transfer, payment, and withdrawal of money whenever possible, because it's harder to spend money that never actually makes it into your hands. And remember to keep some money readily available to use for emergencies. Don't put all your money into accounts that have penalties for early withdrawal.
Pretend it never happened. One easy way to maximize your saving is to put unexpected money (birthday gifts, work bonuses, tax refunds, etc.) straight into savings. Don't let it burn a hole in your pocket. If it helps, go ahead and buy yourself a small treat, but put the bulk of it away for a rainy day (or use it to pay down credit card debt if you have any).
Take advantage of employer retirement benefits. Not long ago, many Americans relied on company-funded pension plans for their retirement. Today, saving for retirement is probably mostly in your own hands. Remember, no matter how old you are, NOW is the time start saving (unless you already have). Educate yourself about your employer's retirement benefits. Many companies provide some sort of matching benefit when you put money away into a 401(k) or similar retirement account. These accounts allows you to make "pre-tax" contributions, which will save you money on income taxes right now. Talk to your HR department about what options your company provides. If you're changing jobs, roll the money over into an IRA (Individual Retirement Account) or the new employer's plan. And remember: The sooner you start putting retirement money aside, the more it will pay off in the long run.
Ask for help from a professional. If it all seems complicated and overwhelming, don't hesitate to ask for help from a financial advisor or a financial coach. The two are not the same. A financial advisor focuses on money you already have and helps you find the best places to put that money. A coach, on the other hand, is more about teaching and encouraging you to start making better financial decisions. At the Consumer Credit Counseling Service of Greater Milwaukee, we can help you enlist the services of either kind of professional.