Saving a lot of money is like trying to run a marathon.
If you dwell on how long the race is, you might not even
get off the couch. But if, instead, you focus on putting one foot in
front of the other and running one mile, and then two miles, and so on,
suddenly a marathon doesn’t seem quite as intimidating.
Try to think about your finances in the same way.
Minor changes that you make right now can have a major
impact on your long-term financial security, according to Stephany
Kirkpatrick, senior director of financial planning and a Certified Financial Planner™at LearnVest Planning Services.
Below, she shares eight quick and easy tips that can help you slowly
and steadily stash away cash—and we profile real people who’ve put them
to the test, much to the benefit of their bottom lines.
1. Open a separate savings account: Simply put, you want to keep your checking account and savings account at two different banks.
Erica Zidel, 31, of Boston, Mass., who runs the babysitting startup SittingAround.com,
says that this is the single best thing she’s done to save money. “I
kind of forget that I have the savings account, so I’m not tempted to
dip into it,” she says. “Since doing this five years ago, my savings
have grown 400%.”
Kirkpatrick agrees that the out-of-sight/out-of-mind
mentality is helpful—plus, it usually takes two to three days to access
money from a separate savings account, so you probably can’t spend it as
impulsively.
2. Set up an automated transfer: It’s
easy to promise yourself that you’re going to transfer a certain amount
of money into savings each week or month, but following through takes an
awful lot of time, energy and discipline. Take the process out of your
own hands by either asking your company to regularly deposit a portion
of your paycheck directly into your savings account (that’s ideal, says
Kirkpatrick, because you never even see the money) or asking your bank
to regularly transfer a certain amount of money from your checking
account to your savings account.
“My husband and I set up an automatic transfer with our
bank between our checking and savings accounts, ” explains Kendal Perez,
a 28-year-old marketing manager at Kinoli Incorporated in Fort
Collins, Colo. “Each week, $50 is transferred, and we don’t typically
miss it. That has helped us build an emergency fund and cover costs like
car insurance and vehicle registration.” And do it frequently: “If you
transfer from checking to savings, I recommend weekly transfers, because
they keep your checking account more level. You won’t feel a huge dip
once a month,” says Kirkpatrick.
3. Bring your lunch to work: Did you know that the average American who eats their lunch out during the week spends nearly $1,000 a year?
Stuart L. Cantor, Ph.D., a 49-year-old pharmaceutical scientist in Mt.
Airy, Md., used to be tempted to go to a Chinese or Indian restaurant
with co-workers for lunch on occasion and drop $12 to $15 each time.
“Now I bring my lunch to work every day. Either my wife
and I will cook something or I’ll microwave a frozen Indian dish that
costs $1.99 for 14 ounces. I always eat something healthy and delicious,
so I don’t feel cheated,” he says.
“The key to making this habit stick is to make sure you’re
not taking an enjoyment factor out of your life,” says Kirkpatrick.
“Have one or two splurge days if you need to. Bringing your lunch 3 or 4
days a week is still better than none.” Ask your co-workers if they
want try this strategy too and eat with you, so you’ll get the same
sense of camaraderie that you would at a restaurant and they’ll help
hold you accountable.
4. Just add 1% … of your gross income to
your retirement savings every six months. The idea is to keep doing this
gradually until you reach the maximum amount that you’re allowed to
contribute. Maximums can change year to year. For traditional or Roth
IRAs, for example, the current limit is $5,500 (and $6,500 for those 50
or older). For 401(k)s, it’s $17,500 for those under age 50 and $23,000
for those age 50 or older. “1% is a good amount because it’s a painless
but significant step in the right direction. You can live without that
small amount of money,” says Kirkpatrick. If you are contributing, say,
2% right now, within about 4 years you’ll slowly grow that amount to 10%
without even feeling it by following this strategy.
5. Track your spending for one month:
Before you can spend less, you need to figure out exactly where your
money goes. You might think you have a good idea, but many people are
surprised by what they find.
Hudson Valley, N.Y. writer Virginia Sole-Smith, 32,
certainly was when she used a spreadsheet to track what she and her
husband spent on groceries in May and June of this year. But the
exercise helped her pinpoint areas where she could slash costs. “We were
spending $75 a month on individual, 6-ounce Chobani yogurts at a fancy
grocery store! Now we buy four-packs and 32-ounce tubs from Stop &
Shop,” she says. Tricks like this have enabled her to cut her yogurt
bill nearly in half and spend 37% less on all her groceries.
To track your spending, use our free LearnVest app.
Then analyze your habits and find at least one area where you’re
overspending. “Pay attention to recurring costs, like cable TV bills and
gym memberships. Ask yourself if you’re getting your money’s worth,”
says Kirkpatrick. If you’re not, it might be time to buy an HDTV antenna
(a one-time fee) or pay for Hulu or Netflix (which are recurring fees
but are less expensive than cable). Or you may want to watch free
exercise videos on YouTube instead of taking gym classes.
If your weak spot isn’t a recurring cost, try putting
yourself on a cash diet, says Kirkpatrick. For instance, if you can’t
enter a shoe store without purchasing three pairs, don’t go in there
with a debit or credit card—take only a certain amount of cash, so you
can’t go crazy.
6. Use a rewards card wisely: “For the
past 17 years, my husband and I and our five children have saved by
charging everything on my Southwest Airlines card and paying off the
balance in full each month. We rack up free miles so we can visit family
in Raleigh and take vacations, like a trip to San Francisco, at much
lower costs,” says Andi Wrenn, a 46-year-old financial counselor in
Arlington, Va.“Over the past four years, we’ve earned anywhere from
3,000 to 12,000 miles per month.” This tactic can be advantageous,
Kirkpatrick agrees. “But only if you spend within your means and pay off
the balance in full every month, so you have to stay disciplined,” she
advises.
7. Set reminders: One big money drain can
be forgetting to pay a bill—and then getting slapped with a late fee
and/or having to pay interest on a credit card payment. This can be
easily avoided by getting organized.
“I started using a hard copy planner (and then a few years
ago, I switched to using a Google digital calendar) to record reminders
throughout the year for different money deadlines, such as paying
monthly bills, contacting my tax professional, reviewing insurance
policies, getting a credit report and more,” says Ray Advani, 42, of
Chicago, who founded the blog Squirrelers.com.
“Over the past 10 years, this has saved me about $1,000
and prevents a lot of stress!” he adds. You can also schedule alerts via
email or text. “Setting reminders is a helpful strategy for people who
lead busy lives,” says Kirkpatrick. “You can also ask vendors, like your
cable company or electric company, if they can reset your payment due
date. You might prefer to have all your due dates on the same day for
convenience or it might help your cash flow to spread them out over the
month.”
8. Move your savings to an online bank:
“Consider putting your savings into an online bank, as opposed to a
brick-and-mortar bank, because the interest rates tend to be higher, so
your money will grow faster,” says Kirkpatrick. For example, if your
emergency fund sits in Citibank’s savings account, it’ll earn .01%
interest. If it sits in Ally online bank’s savings account, it’ll earn
.87% interest. And, as this story shows, even little differences can add
up.
LearnVest Planning Services is a registered investment
adviser and subsidiary of LearnVest, Inc. that provides financial plans
for its clients. Information shown is for illustrative purposes only
and is not intended as investment advice. Please consult a financial
adviser for advice specific to your financial situation. Unless
specifically identified as such, the people interviewed in this piece
are neither clients, employees nor affiliates of LearnVest Planning
Services. LearnVest Planning Services and any third parties listed in
this message are separate and unaffiliated and are not responsible for
each other’s products, services or policies.
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