Do you want to save money? Below are six action steps to build a base of savings:
Save a Dollar a Day- Put a dollar a day, plus pocket change, into a can or jar. At the end of each month, there will be about $50 to deposit into a savings account. Financial planners advise saving 3 to 6 months expenses for emergencies but any amount of savings is better than none.
Live Below Your Means– Track expenses for a month or two to identify spending leaks and to “find” money to save. David Bach, author of The Automatic Millionaire, calls these expenses the “Latte Factor™” because many people spend $5 (or more) a day on fancy coffees, fast food, and similar “impulse” items. This calculator can help you identify personal “lattes” so you can save this money instead.
Make Savings Automatic– Automate savings because people are less tempted to spend money if they don’t see it. Automated strategies include: transferring a set amount from a checking to a savings account, making payroll deposits to a credit union, and transferring a set amount directly each month from a bank account to a mutual fund or stock dividend reinvestment plan (DRIP).
Complete a Savings Challenge– Aim to finish savings challenges, like the 30-Day $100 Savings Challenge, 15-Week Savings Challenge, 52-Week Money Challenge, and 50-week $2,500 Savings Challenge. Challenges provide a savings goal, a designated time frame, and suggested daily or weekly savings deposits.
Contribute to Tax-Deferred Retirement Plans– Save as much as possible in a tax-deferred employer retirement plan and/or open an Individual Retirement Account (IRA). The earlier you save for retirement, the more time your money has to grow, even if it is a small sum. Tax-deductible traditional IRA deposits and earnings are taxed upon withdrawal. Roth IRAs have no up-front tax deduction but earnings are tax-free after age 59 ½ for accounts open at least 5 years.
Earn “Free Money”- Try to save at least the maximum amount of money that can be matched. This is “free money” that should not be passed up. Dollar for dollar matched savings is like getting a 100% return on an investment. When pay increases, raise your retirement plan contribution, which can raise matched savings. Savings plans offer four benefits: employer matching, a federal income tax write-off, ongoing tax-deferral, and automatic deposits via payroll deduction.