- 1 How Much Money Should I Save Every Year? Here’s What Experts Suggest
- 2 161 Easy Tips on How to Save Money for The Down Payment on a House
- 3 how much money should i save for a house
- 4 How Much Should I Save Each Month? – Prioritizing Your Savings
- 5 How I Answer This Question: “How Much Money Should I Save?”
How Much Money Should I Save Every Year? Here’s What Experts Suggest
Even if you’re decades away from retirement, it’s never too early to start saving—and there are some pretty scary statistics to back that up. Financial experts predict that there is a “retirement crisis” on the horizon—meaning too many baby boomers simply haven’t saved enough to comfortably retire. It’s estimated that the average American with a 401k plan will have just $575 a month for expenses by the time they retire. And that’s the estimate of how much the average American with a 401k plan will have. Take into account that half of all Americans don’t even have a 401k plan, and things begin to look particularly bleak.
Nevin Adams, the Director of the Employee Benefit Research Institute, told NPR that only 18 percent of Americans say they’re very confident about having enough money to retire comfortably. A little more than half of people say they’re at somewhat confident about it.
So, just how much do you need to save to live comfortably these days? The old rule used to be $1 million, but now that doesn’t seem to be enough.
Save $1 million and “it translates into $40,000 to $50,000 (annually) in sustainable revenue,” Joe Heider, Regional Managing Principal for Rehmann Financial Group in Westlake, Ohio, told USA Today. “That is not that much money on an annual basis.” Heider suggests a more comfortable number is now $2 million, a pretty daunting sum.
Here, we break down the answers to the most commonly asked questions regarding saving money—when should I start, how much should I save, where should I save, and how do I save? If you have one takeaway, it should be that every little bit counts.
When Should I Start Saving For Retirement?
Every financial expert out there will tell you the same thing—yesterday. In a perfect world, as you begin earning a paycheck, you begin saving. The earlier you begin to save, the more time your money has to grow. Each year’s gains can generate their own gains the next year, referred to as compounding. Let’s say you start to save at age 25, and put aside $3,000 a year in a tax-deferred retirement account for 10 years, and then completely stop saving.
Assuming an 8 percent return, by the time you reach 65, your $30,000 investment will have grown to more than $472,000. To counter that, if you start saving at 35, and save $3,000 for 30 years, assuming that same rate of return, you’ll have only accumulated $367,000 after investing $90,000. Takeaway? The earlier you start saving, the better.
How Much Money Should I Save Every Year?
The standard advice is as much as you can. Many financial planners recommend that you aim to put aside 10 percent to 15 percent of your income for retirement, starting in your 20s. Many planners recommend having a savings target to help you decide how much to set aside a year to reach your goal.
How Do I Start Saving Money If I’m Not Earning Enough?
Financial planners suggest to not think of savings as something extra to add into to your budget if you can (like, say, that vacation, or pair of shoes) but rather an expense to budget for like rent and the phone bill. If you don’t have a budget, create one. Another trick to make saving seem easier is to make it automatic—like automatically diverging money from your paycheck to your 401K.
And when surprise cash windfalls come around like a bonus or an inheritance, don’t think about it, just stick it into savings.
Where I Should I Put the Money I’m Saving?
Tax-favored retirement accounts such as individual retirement accounts (IRAs) and 401(k)s tend to be the safest places to save for your retirement. Individual plans have different features, but most of them allow you to defer taxes on the money you save and the returns you earn as long as the money stays in the account. Experts do recommend paying careful attention to the fees associated with your plans, so what you are saving doesn’t end up getting eaten up without you even knowing it.
161 Easy Tips on How to Save Money for The Down Payment on a House
We’ve spent the last couple of months researching in order to make this ultimate guide on how to save money for the down payment on a house, and we are excited to share it with you – hoping it can help you eventually get that house you’ve always been wanting. It’s a sizeable article, so it’s been broken down into individual topics, so you can bookmark it and read it all at your convenience.
Having your own house is certainly a dream every individual would want to come true. It is a life-changing phase in one’s life as it brings a lot of fulfillment and challenges at the same time. This is often considered by many as sign of maturity as investing in a house entails a lot of financial discipline. Paying it off monthly, being able to manage other monthly expenses, and being able to still save are achievements a person can be proud of.
But what is challenging in getting a house aside from being a homeowner is going through the first stage or the planning phase. Having a house does not happen overnight. Proper and long term planning is required as it is a big endeavor to take especially when it comes to one’s financial state. Most of the time, getting a house would require a person to get a loan and pay a certain amount of money as down payment. After this, he has to pay the monthly amortization rate, taxes, and other fees depending on the type of house or property he will get.
A person who is planning to buy a house must not live in his fantasy. Yes, getting your dream house or a big property is such a fulfilling thing to achieve, but is it something you can afford or sustain for the long term? Do you have the means to pay it off and can you live decently after getting it? These are some of the considerations one has to really think about before deciding to get a house.
If you’re very serious about buying a house, you should also read these +40 negotiation tips that will come in handy once you’ve found the house you really want.
Having said these, consider the size of the property that you will get. You may want to consider getting a pre-owned house as well because its selling price is known to be lower than a brand-new property.
Also, when a person has decided to buy a house, he should know that a bigger down payment means lower loan lower monthly amortization rate and interest fee. An individual can save on big interest rates and pay off the loan in a shorter timeframe. With this information in mind, preparing and having enough savings will make a lot of difference.
But how can you save money to buy a house? What are the ways to get some extra earnings or cut expenses to prepare for that one major event in one’s life such as buying a house? Below are some of the tips that a person should consider before formally deciding to get his or her own house. The guidelines below aim to help individuals get some savings or get extra earnings in preparation for his or her plan to get a house.
- Come up with your monthly finances. It is important that you are aware where the costs are coming from so you can manage them better. Keep in mind that one of the ways to save is to control your expenses. Having a clear and regular financial budget will help you make this happen.
In making your budget, it is important to be as accurate as possible by making realistic goals. Cutting your expenses by 90% is probably not a doable plan to work on. Also, when you have a budget, try as much as you can to stick to it. Going beyond what you have financially planned for the month will certainly not let you save, but instead mess up your finances.
- Not missing the due date of your bills is also very important if you are planning to cut your expenses. Not paying on time will make your bills incur additional fees such as late payment charges and interest fees. These are additional and unnecessary expenses, which you can certainly manage when it is only the timing that is the problem.
Create a calendar schedule so you can be reminded of what expenses need to be paid when. Enrolling in auto debit is also a great way to ensure that all your payables will be paid on time. These tips, of course, will not apply if the cause of you missing the payment is the lack of funds due to other debts that you need to pay.
If you are in this situation, then proper planning of your finances is again important. Normally, what experts suggest is to pay the smaller debts so you can get them off the list. Then by cutting your other expenses, saving, or earning additional income, slowly pay the bigger debts and those that will incur higher interest rates. This will require a lot of patience so just keep an eye on your finances and you will surely free yourself from all those debts after a while.
- Isolate a savings account. What happens with most people is that, yes, they can pay all their debts on a monthly basis, but they do not realize that they are not able to put some money aside for their savings. While it is good to get all your payables paid on time, we should not disregard the importance of putting a certain amount of our earnings to a different account.
The most effective way to limit the chance of you spending it is to have a separate account just for your savings. You will not bring the ATM or checkbook for this account when you go out to make sure that you will not be tempted to touch it. Have a regular debit or checking account for your regular expenses, but do not ever think of using your savings.
- Aside from the option above, another way to save is to have a portion of your salary automatically deducted and deposited to the other account. You can do this by having your payroll set up this way. Many companies have this option to allow their employees to have a more reliable way to save. When planning to save, what most people find challenging is to get a certain portion of their monthly earning to be put in their savings. Hence, the auto-deduct setup will help individuals ensure that a certain amount of their salary goes to their monthly savings without them noticing it.
- Take advantage of the bonuses, tax refund, or any additional payments that you will get towards the end of the year to increase your savings. The problem with most of us is we tend to splurge when we get a bonus especially during the year end season because of the celebrations left and right. During this period, spending more than our budget could be very easy. This is where your discipline and maturity will come in.
Remember the goal that you want, which is to get your own house. Making it happen will need you to control your spending and save as much as you can for the down payment and the monthly amortization. Keep reminding yourself that you need to sacrifice for now, but you will reap the product of your discipline in the long term.
- Let go of the ones that will make you spend a big chunk of your money. Most of us will try to save by cutting a few of our daily small expenses such as getting a small-sized Frappuccino instead of the medium or large size that we normally get. While this is okay and can certainly help, what will make a bigger impact is to cut the bigger expenses.
One good example is to skip your yearly out of town vacation. Or you can also temporarily dismiss your travel plans or cancel your plan to get a new phone by year end. These would certainly be not easy, but with a few sacrifices you can do today, you can be assured that your future will be brighter. These expenses that you will be able to let go will add up to your savings big time.
- Upgrading our lifestyle is what most of us want to do. This makes us feel better and fulfilled. However, more than what we feel and our fulfillment, we should think first about our responsibilities. It is in being able to pay our monthly payables and still live a decent life that we are able to feel a kind of fulfillment that truly matters.
Hence, instead of upgrading, consider downsizing first until you are financially stable in all areas of your life. For instance, if you are still single and do not plan to have a family any time soon, then getting a one-bedroom condominium or apartment is recommended than a two-bedroom unit. The former is expected to be cheaper by between 20% and 30% and it can absolutely add to your savings. Assess carefully where you can downsize your preferences as they will surely help you in your plan to save for your dream house.
- Although cutting your expenses is a great way to save, earning extra money is what will allow you to truly save significantly for a house. You can do this by rendering overtime at work if this is allowed in your company or if you are eligible for an overtime pay. Getting a second occupation is also an option especially during the weekend if you are willing and have the energy to still do it on top of your regular work.
There are also some jobs that are available online where you will only be required to provide support or deliver a task remotely. These mostly are research, writing, and admin tasks that can be done over the internet. More and more people are engaging in these types of jobs as they are not very physically demanding.
- Do not allocate too much to your retirement plan. Your 401K match is a good way to save sufficiently to become eligible for the employer-subsidized contribution. A 401k match normally stops at 6%. You can decide to keep it within that rate and use any additional money that you can save for the house down payment.
Do not feel guilty if you will get a portion from your 401k match contribution as allocating it to your house is just equally important. Keep in mind that the house that you are trying to save for is an asset and a big investment. Hence, you are still saving for you and your family’s future, but only in bigger scope.
Alternatively, a first-time home buyer can use his or her retirement investments to initially fund the house purchase. In most cases, individuals are allowed to withdraw $10,000 from the retirement savings without worrying about being charged of penalty costs.
- Get support from the people around you. Saving up is just like any activity or challenge you want to put yourself into wherein you will need support from the people that matter to you like your family and friends. In this particular situation, the support that you need is for a family member to refrain from asking you to host a party every weekend or for a friend to stop asking you to watch a movie or dine out after work. If they are always doing the contrary, it will be stressful and challenging for you to be successful in your plan to save for your dream house.
- Do not deprive yourself too much. While saving up can be very rewarding in the end, the process of doing it is what most people find very challenging. It requires a lot of discipline, which involves saying no to some of the things that make you happy such as travelling, shopping, or simply dining out with family or friends. Cutting these activities can make you develop a feeling of being deprived, which will lead to unhappiness. If the situation reaches that point, then your plan to save could be a struggle.
Hence, instead of entirely stopping yourself from enjoying things that make you happy, still indulge in it but in a more creative and simple manner. For example, instead of dining at a very nice restaurant, consider cooking at home. If watching movies is your thing, consider subscribing to Netflix. Keep in mind that the goal is to get some savings, not zero spending. This is more realistic and will not be stressful on your part.
Many people have learned to save money to fulfill their dreams and sustain a happier life in the future. These are the people who understand the power and value of money. They know that if it is used inappropriately, it can make someone’s life chaotic. Unfortunately, despite this realization and awareness, saving money for a house up is still a struggle for some people.
Saving up is more likely to become successful if one has a clear plan. This plan will help prevent making an individual feel lost and deprived, which will lead to the person not meeting his or her goals and eventually giving up.
The importance of saving has already been explained in the article above. Now, several ways to save are explored below to help individuals with their goals. But in general, how can an individual start saving money? What are the facts that will help us start this challenging and yet satisfying plan? Please read below to get some helpful tips on saving money.
- The reason why people do not save money is not really about not having the idea that it must be done. The problem is, we know that it must be done, but most of us are not doing it due to a number of reasons. These reasons may include thinking that it is not an urgent thing to perform or they do not have the time to open a savings account. Some think they cannot save because what they earn on a monthly basis is just enough to cover for their regular expense, or, sometimes not even sufficient. Unfortunately, all these reasons will certainly prevent a person from saving up. Saving money starts with a clear goal in mind and commitment to do so no matter what.
- In relation to the item above, what is important is to start and build the habit of saving. Begin with small items and start saving up as soon as you can. You have to decide and tell yourself that you need to do it ASAP; now if possible. As they say, one cannot have $500 without having a dollar in his pocket first. So, start saving up even if it involves a dollar. Doing this will help you realize that there will not much impact on your life if you set aside a dollar every day – you will still be able to eat three times a day, have a house to go home to, still enjoy your ride home, and the likes.
As soon as you have built the habit of saving and see its importance, increase the value of what you are setting aside slowly. Before you know it, you will find yourself able to save $100 monthly.
- Set realistic goals. As mentioned earlier, having a clear plan will help a person fulfill his or her goal to save successfully. Start by determining what or where you will use your savings for in the future. Do you want to buy a house on your own or a car? Are you preparing to have a family and you want to save up for your kid’s school? Or are you getting ready for a major travel vacation as a gift for yourself? Whatever it is that you are planning to accomplish that triggers your interest to save, keep it in your mind and use it as an inspiration to meet your goals.
- Open a savings bank account. When you start, it will help if you have an account where you can deposit your money and not see it anymore after. Open a new one so you have a separate account from your regular ATM or checking account that you use for your regular expenditures.
Most of these saving accounts require a minimum or maintaining balance to earn interest or not incur penalty charges. Talk to a bank personnel nearest you to understand how this works. If it will come with an ATM card, then do not bring it along with your other ATM cards every day. Having a separate account and not seeing it regularly will help you keep the money intact.
The most challenging part is seeing things that you want or food that you’d love to eat and seeing that you still have enough balance in your account to buy them. Hence, if you will lose access to your savings account and just forget about the money in it, your savings will certainly remain untouched for many years.
- Sign up or enroll your payroll account to an auto-deduct set up. Work with the payroll team in your company to request that a portion of your salary be automatically deducted and deposited to your savings account. This can be done monthly or semi-monthly depending on how your company payroll works.
You can start with a 5% or 10% deduction. Having this amount of money automatically deducted from your salary before you even see your bank account will help you save and not use the money for whatever purpose there is.
- Cut your credit card, if possible. Most people are tempted to buy more than what they need or more than what they can afford because they have a credit card to fund their expenses. What a credit card gives is instant satisfaction. And sadly, what most people fail to realize is its long-term impact.
Your expenses on your credit card can easily accumulate without you realizing it. It could include straight payment purchases or those that can be enrolled to an installment plan. The latter is very appealing to most credit card users and is normally the cause of people getting tempted to shop and spend too much. Hence, before you fall into the trap of the comfort that credit cards give, have them deactivated and start controlling yourself from indulging into shopping therapy.
- List down your daily expenses and compare them against your monthly budget. Life gives us so many reasons to spend. Bills come left and right and it can be very easy to get lost and miss a payment. Hence, it is highly recommended to come up with a monthly budget so you have a clear goal in mind as to how much you can only spend monthly.
Also, come up with a list of your regular expenditures and compare them against your monthly budget. Try as much as you can to stick to your budget. If possible, adjust your expenditures, not your budget. Having everything listed out will help you get a clear view of where you can make adjustments accordingly. Look at the list on a regular basis. Find ways on how you can cut the expenses on your list. Most people say this is possible on a person’s discretionary costs such as weekly movie dates, fitness club subscription, dining out, and the likes. These are items you can probably let go or limit to help you trim down your expenses and get some savings.
For example, instead of going out every weekend to watch a movie with your friends, see if you can pass on some weekends and just join them once a month. This will help you save around $10 every week, but will surely not affect your friendship. If they are your real friends, they will be your friends regardless if you join them for movie every weekend or not.
However, keep in mind not to deprive yourself too much. Do it in moderation and develop a thinking that you will be able to appreciate these activities more if you do not do them more often. For example, you will look forward to your once a month movie date with friends and you will certainly spend some quality time with them because you do not see them more often anymore. Try to see the advantage behind this recommendation.
- Take advantage of sales or promos. Another good way to save is to buy items on sale. But do not let this one encourage you to spend just because something is on sale. What this means is, instead of buying your favorite detergent for its regular price, you maybe can buy 2 of it for the same price when there is a sale or promo at your favorite grocery store. These programs, if used correctly, will help a lot of individuals get the value for their money.
- Stay away from temptations. Giving in to temptations is one of the reasons most people fail in their attempt at saving. The most efficient way to avoid temptation is to stay away from it completely.
For example, you already decided not to buy the newly released rubber shoes by Nike, but you decided to visit the mall nearest you just to see it and try how it will fit on you. Doing this will just increase the chances of you giving in and buying it eventually and just say, “This is going to be my last purchase”. That last one could happen again and again and again. And before you know it, your goal is already ruined.
- Dream big. It has been mentioned earlier to start small. Yes, that is your first step. As they say, great things start from small beginnings. But do not get stuck there. Once you have started the habit of saving up, be sure to expand your horizon and start dreaming big.
Think of the future or your retirement days. You would want to have enough savings by then, don’t you? If yes, then go big so you will get something big in the future. As soon as your expenses are more manageable, increase the percentage of your salary deduction that goes to your saving account. If you started with 5%, then consider increasing it to 10% or 20%. Be aware that the 10% saving rule is recommended for people in their early 20s. If you started saving late, then you may want to make up for the lost time by setting aside between 20% and 30% from your monthly earnings.
- Stick to your goals no matter what. In any mission or goal, the more difficult part is sticking to it and getting out of it successful. Why is this? It is because of the many challenges or temptations that a person may not be able to resist.
Saving up is a commitment so be sure to develop that discipline as it will be critical for your success. And keep in mind, in case you did give in or miss to save on some months, starting it and going back to it after several misses make a lot of difference. Make sure to review your goals regularly so you will be reminded of them constantly.
We all know that it is important to save and that it will make us financially stable in the future. But why do we find it so difficult? Why does it come with a feeling of deprivation or loneliness? As shown below, there are a few reasons why most people find it so hard.
- Over the years, saving money has become more and more difficult because of the onset of technology. Products and services have become more accessible to consumers making it easier to spend and buy items we would have not considered buying many years ago. With just a click, you can go to an online shopping site and pick your orders and have the items delivered to you right in front of your doorstep. This inconvenience has made spending very appealing to many people and it is absolutely preventing people from saving.
- Aside from the easy accessibility, it has also become more difficult to save because of the many options presented to us. There was a period in history that our choices were limited to just black or white, cash or check payment, 20% down payment, 3 months installment, SMS service, and the likes. But because of the ever-changing times, we, the consumers are presented with more options and better products and services in the market.
This wide selection of items we can choose from makes it more appealing for us to spend. For example, payment terms for highly expensive items are now more flexible. Some retail stores offer up to 24 months installment with 0% interest rate. This is absolutely a lot easier to manage than having to pay a product for a fixed term of only 3 or 6 months.
While consumers certainly benefit from all these options made available to them, there is an ugly truth behind it especially if a person will just give in to those options carelessly. Despite these great options available to us, a consumer must be mature and wise enough to control himself from spending unnecessarily. With discipline and commitment, saving can absolutely be a fulfilling goal to work on.
- The advancement in human lifestyle has contributed to the difficulty of saving as well. Nowadays, it is very rare that one will get bored or find himself not doing anything. The world around us has become so busy that it has become almost impossible not to have anything to keep a person busy.
During the weekend, which used to be a free time for most people, you may find your schedule busy as you probably have a soccer game to catch or a TV series to finish because you missed some of the episodes from the previous weeks because of the overtime you rendered. You may also get an invite from a friend to watch a play where he has been casted or you simply just need to visit the gym for your weekly fitness commitment. Whatever it is that you have scheduled every day and over the weekend only proves that people around the world have become very busy that they are unable to find time to review their finances, come up with a monthly budget, compute for monthly expenditures, and the likes.
Some would even miss paying a bill due to his busy schedule and would end up having to pay more. This kind of lifestyle has made saving money become very challenging and least important for some people. And it actually has led to people spending more.
- Apart from the changes mentioned above, the increase of awareness has also invited people to spend more instead of saving. We are talking about media or the advertisements that we can see on TV, on the roads, in the malls, and anywhere we go. Although these advertisements help keep us well aware of what is going on in the market, it is also persuading people to buy, unfortunately. This awareness comes with pressure to go along the changing times as well.
For example, would you have decided to buy your latest iPhone unit if you did not see it on TV with all the great features it offers and knowing that most of your friends have one as well? Unfortunately, not buying and saving money both have become very hard because of all the great products and services that are presented to us right under our nose. But then again, we have to realize that we cannot stop all these developments from happening.
You can stop a manufacturer from advertising his product and creating a need to persuade consumers out there to spend. What you can control, which would address the other factors mentioned earlier, is yourself. You have to commit to save money, control yourself, have a little patience, and be determined to stick to your goals no matter what. This kind of disposition in life is important and will help a person come out alive and financially successful in this fast-changing world.
- Changes in basic needs. Another factor that has affected everyone’s spending habits is the changes around the basic needs of people around the world. Our parents and grandmothers did not find any need to get a mobile phone or buy a smart TV during their times. Internet connection then was also never heard. All these have changed now.
When you look around, you probably cannot find any person anymore without a mobile phone. The world we live in has required that each person own a mobile phone for connectivity. This device, of course, has increased a person’s expenditure, which is totally against a person’s goal to save money. Keep in mind that in order to maximize the features of a mobile phone, one has to maintain a data or mobile internet subscription, which obviously is an additional cost again.
Saving money can actually feel good.
It is certainly easier to spend than to save. Hence, budgeting and saving are both difficult for most people to do. So, how can one be able to budget and save money despite the difficulty mentioned here? Below are some tips to help you manage your finances better. There could be more ways for sure, but what’s presented below are the 4 most popular ways to make a budget and save money.
- Your finances will continue to be a mess until you provide yourself with a fixed budget on a daily, weekly, or monthly basis. Budgeting is very important in having a good financial standing. Giving yourself a limit of how much you can only spend will surely allow you to control your expenses and save money in the long run.
Budgeting involves having a clear and detailed list of a person’s financial obligations. A payment schedule and budget for each based on a person’s monthly earnings are then plotted for easier review. This list should be revisited regularly to see where an individual can possibly trim down an expense and save more.
- Control and reduce your spending. The recommendation above, budgeting, will help you on this item. By having a fixed budget daily, weekly, or monthly, you will be able to better control your spending and eventually reduce it month after month.
Discipline and a lot of self-assessment are needed to make this happen. For example, if you are a coffee lover, you may want to start asking yourself if you really need coffee from Starbucks every day or if it is something you can have once in a while. You can maybe just satisfy yourself with an instant coffee on a regular basis.
Instead of bringing your car, which would require you to spend on gas and parking, can you take the train or join a carpool going to work? All these are items that you can control and only you can manage. Your decisions and answers to these questions will have a great impact on your finances.
- Use credits and loans wisely. It is a fact that most people, at one point in their lives, will have to use a credit card or avail of a loan. For example, who would have enough funds to buy a house or a car by paying cash? Most of the time, these investments would require a person to get a bank loan.
A loan is helpful as it allows a person to have a more flexible payment terms. It becomes a negative item when it is abused and not paid on time. Thus, both loans and credit cards must be used responsibly to enjoy the benefit they bring.
- One must understand a very simple process in saving money – it can be done by spending less and earning more. Hence, a person who is planning to save must find ways to earn more and try hard to lower his or her normal expenditures. This is a very straight forward, but unfortunately, there are various factors preventing most people from doing this.
One example is, prices of commodities go up, but an individual’s salary remains the same. In this case, saving money becomes challenging. But this reality should not stop a person from wanting to save money and prepare for a brighter future. Start with a goal and do so even with small amounts. Build the discipline and aim to save more as soon as your finances become more manageable.
When a person has decided to save, there are some guidelines that he or she has to be aware of to make it successful. Below are some of them for reference.
- Cash is not your only option. A person may only think about setting aside cash or money for future use. A person must be aware, however, that it is not the only option available. The other choices are much better and will give higher returns compared to cash savings.
For example, it may include investing in stocks or bonds. It is highly recommended especially for a long-term planning as they are expected to earn more after many years. While they are also risky as they are dependent on the performance of the economy, the gains or returns cannot be disregarded as well.
- Interest is not entirely bad. Interests, unfortunately, have a negative connotation because they are mostly linked to the additional fee a person will have to pay in case he or she misses a payment. What most people do not realize is that interests are not completely bad as they can also refer to the additional fee a person may earn when he or she starts to save and does not touch the money for many years. This especially works when it comes to compound interests. Understand how much interest your money is making by discussing this with a bank personnel.
- The earlier you start, the better. Keep in mind that saving has a lot to do with time. Over the years, a person’s savings will increase especially if there is consistency in setting aside a portion of his or her salary monthly. The interest your money will earn is expected to be higher as well. Hence, if you have not thought about your future and have not started saving yet, it is highly recommended to start now. Do not wait before it is too late. It is better if you start young so you may see a brighter future ahead of you.
- Experts say that around 10% of your salary should go to your savings. This can go lower or higher, of course, depending on your financial capacity. Keep in mind though that the recommended 10% allocation is recommended for those who are just starting to save or those in their early 20s. As you get older and as your finances get more manageable, which is what it should be, consider increasing the allocation by 10% or 20% more.
- Save for the rainy season. This one is very important. Life can be very unpredictable. You may be healthy and strong today, but you can’t be 100% sure as to how long you will stay that way. Hence, it is highly recommended to have money for emergencies or unscheduled events in your life. This may include medical expenses, calamity funds, and the likes. This may also help you in case you lose your job or a family member gets hospitalized.
In saving for this side of life, identifying whether you are a breadwinner or not is important. If you are not, then it is highly advisable to have savings that can cover your monthly expenses for at least six months. On the other hand, if you are a breadwinner, the recommendation is to have funds that can help you pay your financial obligations for at least one year.
Everyone may have a different reason for looking for ways to spend less. It can be for education, travel, to buy a car or a house, medical expenses, house renovation, and the likes. Although it is good to have a reason to save, people must keep in mind that saving is something we should all be practicing whether we have a clear goal in mind or not. Having a brighter future and preparing for the unknown are good reasons enough to start spending less.
It can be done in various ways. Below are some of the easiest ways to do so for everyone’s reference.
- Track your expenses. Saving is about being able to keep a certain amount of money from your monthly earnings. This can be done by ensuring that one’s salary is higher than his or her financial obligations. Unfortunately, this is not the case for some people. When expenses become higher than your earnings, it is high time to start monitoring your expenses. List down all your expenses on daily, weekly, and monthly such as gas, grocery, food, transportation cost, electricity and water bills, loans, and the likes. This will let you manage your expenses better and not miss any due dates.
- Give yourself a fixed budget. Saving will become more difficult if you are not working on a specific budget. Having one will, in a way, force you to control your expenses and live within the budget that you have set. This will give you a clearer picture of how you can manage your salary better based on the expenses that you have. If you know that you will overspend, then you can adjust your spending to meet the monthly budget that you have initially identified. This will not only allow you to save, but also help you develop discipline or self-control when it comes to buying.
- Based on the budget that you have set, come up with a realistic savings target. From the remaining money that you will have after paying all your financial obligations, decide how much of it should go to your separate account.
10% to 20% is what most people recommend. Ideally, this allocation should be based on your monthly earning – that is, set aside 10% to 20% of your monthly salary. However, this may not be doable for some people. Hence, the allocation is based on the remaining money a person will have after paying all his or her financial obligations.
- Have a goal in mind. One great way to save is to have a specific goal. It will be a good start if you already know why you need to set money. For example, planning for a major vacation for your birthday in 2 years can be a good inspiration to start setting aside a portion of your salary and depositing it in your savings account. Saving up for a car or house down payment is a good reason too.
- Every month, saving can be a challenge as you will be faced with several products and services that they will advertise repeatedly. The aim of those advertisements is to create a need and convince consumers to spend. You will not fall into this trap if you know what your goal is and if you can prioritize. Know what your priorities are so you will not be easily swayed to go against your goal to save.
- Partner with reliable and stable organizations. Saving may involve the need to open a separate account in a bank or investing in stocks. Make sure to pick a bank that can offer you the best savings plan based on your future needs. When it comes to buying stocks, make sure to understand it well before engaging in the said business. Work with a trusted stocks broker as well.
- Auto-deduct an amount from your monthly earnings. Most people fail because they have the money readily available. Therefore, it is recommended to have your savings separated from your regular savings or checking account that you use for your regular expenditures. You may work with your bank to automatically set aside a certain percentage of your salary and deposited to your savings account.
- Monitor and enjoy how your money grows. Find comfort in seeing your account increase month after month. Use this as an inspiration to continue on a regular basis.
There is no excuse not to save as it can be done in various ways. Below are some of the ways to save on a monthly basis. There are definitely more means available than the list provided below, but what are shown below are the most common ways.
- In today’s generation, having a smart cellphone has become a trend while some treat it as a necessity depending on their profile or what they do for a living. Getting an internet plan is also needed to fully enjoy the benefits a smart cellphone brings. In getting your plan, assess what exactly you need so you will pay only for features that matter to you. Most telecom companies nowadays allow their consumers to choose features or a package that will meet their needs. Take advantage of this by working with your telecom provider.
- If you still have a landline and you really do not have any need for it anymore, consider cancelling it especially that you and your family members may already have a mobile phone. This will give you big savings for sure.
- When it comes to your internet provider, make sure to carefully assess the plans being offered by each one. You may get the same speed and performance for a lower price from internet provider A instead of internet provider B.
- If you have a busy lifestyle and rarely stay at home, same with your other family members, cutting your TV cable subscription will give you additional savings on a monthly basis.
- At home, there are many opportunities to set money aside besides the ones mentioned above. For one, cleaning your appliances regularly will help lower their energy consumption. Keep in mind that dirt can prevent a device from performing well, thus will require more energy. A freezer with ice buildup will require more energy to cool your fridge versus a freezer that has been properly defrosted.
- Gas is also one of the expenses every car owner will have to worry about daily or weekly. To get some savings from this expense item, make use of promos or coupons through the loyally membership card that you have. Consider not bringing your car as well on days when public transportation is more accessible. Carpooling is also a good option.
- When buying medicines, getting the generic brand will let you save some dollars versus buying branded medicines.
- When it comes to fitness, instead of enrolling in the gym, which costs a lot, consider running at the park near your house or work.
- Buying coffee everyday will not only hurt your pocket, but may also be not good for your health. Skipping your coffee twice or thrice a week will let you save a big amount of money every month.
- Avoid missing due dates as this will result in bank fees or penalty charges.
- If you have enough funds, consider paying in cash especially if doing so will make you eligible for discounts or coupons.
- Reconsider buying branded items for your clothes, shoes, and the likes. By now, you should already know that when you buy branded items, you are not only paying for quality but the name or label of the product as well. While this is not entirely bad, you may want to limit this especially if you have a goal to save money.
- Buy only what you need. When it is time to do your grocery for the month, the tendency for some homeowners is to stock up for convenience. This may result in some products going beyond its expiry date or getting spoiled. This is certainly a waste of money.
- Stop your vices. If you smoke or drink regularly, consider stopping it to be able to save some dollars. This will not only earn your pocket additional money, but will certainly improve your health and life overall.
- Do things inside the house on your own instead of hiring a contractor. There are works in the house that require a professional contractor, but learn to do things yourself especially the minor or basic ones.
- If you have a big yard, consider planting vegetables for your personal consumption. This will definitely lower your monthly grocery bill.
- Wash your own laundry or car. Hiring someone to do these tasks for you will require you to pay a few dollars. You will be spared from the said expense if you can do it yourself.
Grocery expenses are one of the major expenses an individual may have on a weekly or monthly basis. Saving on this item will surely help you a lot with your plan to save for your future or for whatever reason you may have.
- Before going to a grocery store, be sure to have a list of items that you need to buy. These items could be good for a month of week depending on how you want it done. Having a list will prevent you from buying things that you really do not need.
- In relation to the item above, know what your meals will be for the week and list down what you need to buy. If thinking about it for the whole week seems to be too long, then you can shorten it accordingly. There is no fixed or recommended number of days here. Just plan carefully and list them down before doing your grocery.
- Do your grocery at least every other week. Do not do it daily or more than once a week as you will end up buying more and spending more.
- While it is said that buying bulk can be more practical, it may not work especially if you would not be able to fully maximize it. Hence, consider buying in small amounts or only what you need. This is where having a list of what you need becomes beneficial again.
- Consider the cheaper types of meat of fish for your dish. For example, a fish has several kinds. If you are preparing for a fish dish, consider getting a cheaper type of fish to save some money.
- Price of commodities change depending on the season. Make sure to buy fruits or products that are in season as they are known to be cheaper.
Below are some of the opportunities to get some savings in the house.
- Refinance your house mortgage or negotiate your monthly rent as needed. If you have been renting out your place for many years already, try negotiating its fee with the landlord. Your loyalty may make you eligible for a discount.
- Keep spare change or coins consistently. Do not get used to saying “keep the change” as they can be very big savings in the long run. If you feel uneasy collecting coins, get a jar or bottle where you can put your coins every day.
- If it is not too hot in your room, turn off the fan or your air-conditioning unit. This will absolutely decrease your electric bill.
- Do not let leaks and other issues in your household remain unrepaired for many days or months. A water leak is not only a waste of an important natural resource, but will also increase an individual’s water bill significantly.
- If you need to entertain guests or fiends and want to serve something for them, do it in the morning as breakfast meals are certainly more affordable than lunch or dinner.
- Do not let an appliance to operate or run if you are not really using it as it will not only increase your cost, but may also trigger fire if left running for many hours.
- In pressing your clothes, do it in bulk as doing it frequently in small number will consume more energy.
- Turn off the lights in empty rooms and during the day. Let natural light come in so you do not have to turn on your lights anymore.
- Close bathroom doors or closet appropriately especially if you are using your air-conditioning unit. Keeping them closed will prevent the AC from having to cool those areas as well.
As mentioned earlier, saving money can be done in various ways. One of them is to save money on food. Below are some of them for reference.
- Refrain from buying pre-packaged vegetables, fruits, or salad mix. While they are very convenient to buy, they are also known to be more expensive than the ones you can pick individually.
- Grow some vegetables or fruits at your backyard if there is a space available. Aside from being a practical option, you can also be assured of its quality as they are grown by yourself. They are also more accessible hence, would not need you to spend gas or transportation cost to do your grocery.
- Compare the prices in buying in bulk versus those that are pre-packaged before buying a product. Sometimes, buying in bulk is cheaper, sometimes it is not. There is no hard rule around this item so just make sure to check the prices before deciding to buy a product.
- Take advantage of promos by stocking up on items that are on sale. Keep in mind, however, to do this only on items that have a longer expiry date. Otherwise, the item may get spoiled and that is a waste of money.
- Learn how to make use of leftovers for another dish so nothing goes to waste. Example, your leftover fried chicken, aside from being reheated, can be used to make soups or can be mixed with your salad. It can also be used to create a sandwich spread that your kids will surely love.
- Grocery items have become like clothes. Some are branded, while some are cheaper as they are grown locally. For your favorite pork chop for example, buy the one that is not branded as it is cheaper.
- Try to mix your meals every other day for the entire week. For example, prepare a meal that requires expensive ingredients and then try a canned tuna the next day. Canned tuna products are not only affordable, but are also rich with omega-3 fats that are good for the heart.
- Some grocery stores have membership cards that will allow you to earn points every time you buy from them. Those points have a dollar value so in time, you can use those points to buy your grocery items.
- Some brands or product manufacturers would launch a promo or include coupons in their packaging to encourage consumers to choose their products. Make sure to avail of these products that are on promo or come with some coupons.
The price of gas has gone up over the years and it has continuously hurt a lot of consumers. But there are ways to also save on it. Please see below.
- Drive less by planning your day carefully. If you know your errands for the day, then you will be able to take the shortest or best route that will prevent you to drive to the same area twice.
- If you need to meet with someone for a quick talk or you just need to pick up an item, consider walking or bringing your bike instead.
- Do not drive too fast or accelerate instantly as it will require your motor to consume or burn more fuel.
- Do not warm up your car for too long as you will be wasting gas for nothing. The recommendation is to do it only for 30 seconds or 1 minute maximum. Hence, if you are not ready to go yet, do not turn on the engine of your car yet.
- Gas price hike will normally be in the news the day before it happens. In this case, it is recommended to gas up full tank while the price is still lower.
- Turn off the car’s engine if you are not ready to drive yet. If you are waiting for someone or if the traffic has gone really bad, make sure to turn the engine off for long stops.
- Gas up at a gas station where the price of gas is lower. Yes, this is possible. For example, in a highway, the first station you reach after a long drive will normally have higher gas rates. This is where proper planning will be helpful as well. Gas up before entering a highway or drive farther and find a gas station in the next town.
- Avoid wind resistance as this will make your engine consume more fuel due to the extra drag that your car will need. You can prevent this by closing the car windows while driving.
Life, with all its joy and beauty, has become very expensive. This is shown through our monthly bills that seem to continue to get higher every year. But do not worry too much as there are means to save money on bills as shown below.
- At home, turn off appliances that are not in use. Sometimes, when you are working on a report, you simply want to sit in front of the TV while it is on even though you are not really watching. This is an obvious waste of electricity so try to stop this bad habit to get some big savings on your electric bill. Lights are also frequently left open. Make sure you and anyone living with you can create a habit of turning off the lights when not in use.
- When cooking, take advantage of the heat that the hot plates on your oven will be able to retain for a few minutes after you turn it off. Turn off the gas 3 or 5 minutes before the full cooking time and let the heat of the plate do the trick.
- Clean your appliances especially your air-conditioning unit and electric fan as they consume more energy when dirty. Dirt makes the engine work harder, thus energy consumption is higher.
- Reuse and recycle. For example, reuse your grocery bags by using them in your trash bins. This will prevent you from having to buy garbage bags regularly.
- Watch out for water leaks in the kitchen or bathroom as this will certainly increase your monthly water bill which is not good. Have them repaired immediately.
- Limit your grocery items and buy only what you need for the week. Do this by planning carefully and bringing a list with you at the grocery store.
- Cable subscriptions can now be customized. You do not have to pay for a bundle of channels that you do not actually watch. See what channels you can remove and if they can lower your subscription rate.
- Do not allow promos to let you to buy things that you do not need. If you do not really need an item, please control yourself not to buy it as it will only add to your monthly bill.
- Check on everything before going to bed. Make sure that the faucet is fully closed, the lights are off, and the likes.
- The best way to save money on insurance is to prepare and make sure that you have some money for minor emergencies or medical expenses. Keep your insurance on the bigger life events that your savings cannot cover.
- Make sure to review your insurance coverage regularly. Policies may change and there could be opportunities to put money back in your pockets from those updates. By reviewing your insurance policy, you would be able to prevent duplication of coverage.
- Limit your claims. Your insurance company would know if your risk to get sick or get hospitalized has increased. This may cause your insurance rate to increase as well.
- Get the one that has the lowest rates, but will give you the best insurance coverage that will meet your lifestyle.
Check out more tips to lower your insurance payments even further.
- Make sure that your status is correctly reflected in your tax profile. Taxes are based on an individual’s status. If you are married, but your tax status is single, then you are paying more than what you should.
- Get a tax professional to prepare or review your income and taxes before filing. The fee can be deducted from it anyway.
- Validate old returns. If you were not able to get a deduction or a credit on some returns within a 3-year period, you can submit a revised return claim. Be sure that it is 100% accurate as the IRS are stricter in reviewing amended returns.
- Buying a house can decrease the tax that you need to pay as mortgage interests can be deducted for your tax filing.
- Unpaid student loans can also help you save on taxes as this type of loan can be deducted from AGI. In this case, it is recommended to pay off your credit card bills and other payables before paying your student loan.
- A high electric bill is one of the areas where we can spend less. Make sure that your electricity is not wasted because of unused appliances or lights that are kept open. Turn them off if they are not in use or if you will be away for more than 1 minute.
- When it comes to your water bill, you can decrease it by using used water (water from laundry) to flush the toilet or wash your car tires.
- Do not pre-rinse the plates or glass anymore. You will be able to remove food particles from the plates anyway by scrubbing them a little harder.
- Make sure that your water setting is set to moderate to prevent the water from coming out of the faucet too strong. Make sure as well that there are no water leaks in your kitchen or your bathroom.
- Make your house properly insulated. Without proper insulation, one’s home will be a lot colder in the winter and a lot hotter during the summer. Both scenarios will not benefit a homeowner. A colder night during the winter will a require a homeowner to use his or heater more while a hotter summer period will surely require you to activate the AC all day.
- Instead of paying cash, pay some of your bills using your credit card. Some credit card companies offer discounts or cash back when they are used or if you reach a certain amount.
- If you are just starting to buy your appliances or furniture, opt to buy the ones that are known to consume less energy. Inverter appliances are expensive, but they are proven to cut your electric bill by half.
Every day is an opportunity to be frugal and save. When we eat, or go out to buy some stuff, we should always assess if what we are about to buy are worth the price and if there is a cheaper version that we can get.
- When buying appliances, get one that comes with a control or technology that will allow you to program it remotely. This will help you get some savings as the device will be able to manage its performance based on the situation. For your AC for example, set it up to turn off once the room has reached its cooling temperature and to turn on again after 30 mins or 1 hour. You can do the same for your TV. Many people watch TV while they try to fall asleep and they end up sleeping all night while the TV is on. This is a total waste of money. Program the TV to sleep or turn off in an hour to prevent this situation.
- Although coupons can help, make sure that you are using them wisely. Do not use them for items that you do not really need for the sake of using your coupons. Similarly, do not buy an item just because it comes with coupons even if you do not really need the said item.
- Avoid over speeding tickets or any traffic violations. These are unnecessary expenses that we normally incur because we fail to plan our day. A person usually commits a traffic violation when he or she is rushing to the office. You can avoid this by waking up early and leaving your house on time.
- If you own a credit card for many years and have been using and paying it religiously, check with your credit card company if you can get a lower interest rate. Most companies will offer this to their loyal customers.
- Review your mobile phone’s plan and make sure that it is packed with features that you only need. Most telecom companies now offer customizable data plan to meet the needs of their clients.
- Make your own meals instead of dining out. By now, you should already be aware that when you eat out, you are not only paying for the food, but for the ambiance, the place, the people serving you, etc. You can certainly save more if you will just buy and cook your own meal.
- Consider deactivating your gym subscription. If you get too busy at work and become unable to visit the gym, then think again why you are allowing your money to go to someone else’s pocket. There are other ways to get fit without having to spend too much money.
- Do things yourself if possible. Wash your own car. Do you own laundry. Paying for these services should be your last option especially if you can find time to do these tasks yourself during the weekends.
- Do not miss your due dates to prevent paying penalty or interest fees.
- Share the bill. If you are dining out with a friend and the restaurant you went to has big servings, ask your friend to share the meal and divide the bill.
- Go on a movie date with full stomach. This will prevent you from having to buy some snacks while watching.
- Stop smoking and limit your drinking parties. These actions will not only give you additional dollars in your pocket, they will also promote a healthier you.
- Travel or buy ticket when it is off-season. Tickets are known to get more expensive during the peak season. You will not only enjoy lower rates when you buy during off-peak, you will also get to spend more quality time at a certain place because it will be less crowded.
Saving is possible as there are various ways to do it. A person must start at home. Below are some opportunities in your own house.
- Timing is everything. And this also applies to this goal. Malls and stores go on sale once or twice a year. Take advantage of this to buy in bulk especially the ones that you really need at home.
- Refinance your housing loan to get a lower interest rate.
- Subscribe to have a Sunday newspaper delivered to you. It normally comes with several coupons. The savings that you will get from those coupons are much higher than the amount you have to pay for the newspaper.
- Find a good spot in your house where you can relax and enjoy the rest of the day. This will prevent you from wanting to go out or spend a luxurious vacation elsewhere.
- Engage in DIY projects. Instead of buying expensive decors for your house, try to check out some magazines and see if you can do some on your own. This will not only allow you to keep more money in the bank, it will give you a satisfying feeling for displaying something that you created DIY style.
- Organize your kitchen and your fridge. Not finding something that you need when preparing your meal will most likely make you buy it immediately. You can prevent this situation and save you some dollars by making sure that your fridge and kitchen including the cabinets are well organized.
- Open your windows at daytime to allow natural light to come in. This will let you turn off the lights and save some electricty.
- Iron clothes once a week or every other week. This is more cost-efficient than having to iron 1 piece of polo or shift every day.
- Make sure that the door of your refrigerator is closed all the time. Clean the fridge as well especially if you are not using an auto-defrost refrigerator. The buildup of ice makes the motor of a fridge consume more energy.
- Repair any water leaks immediately. While waiting for someone to fix it, close the water source from the main switch to prevent loss of water. Otherwise, expect your water bill to get higher than your normal bill.
- Use your credit card wisely. Instead of paying cash, use your card to avail of installment plans at 0% interest. When you decide to use your card, do not miss your due dates as it will cause you to pay a penalty or interest charge. You will lose the benefit of 0% interest which is why you used your card in the first place.
- In case you are not aware, your appliances or any electronic devices in your home still consume electricity if they are left plugged to the socket even if they are off. Thus, make sure to unplug them all the time.
- Invest in appliances that are known to consume less electricity such as the inverter models out there. You should pay more to get them, but the savings you will get in using them will be worth it.
- Cook your own meal instead of dining out. This is an effective way to spend less as foods in restaurants are extremely expensive in comparison. If you cannot cook, then try some budget meals that can surely satisfy your tummy, but will not hurt your pocket.
- If you are renting, ask your landlord if you can get a lower rate especially if you have been renting out the place for too long. If the place has extra space, consider asking a friend to share the rent with you so you do not have to pay for the rent on your own.
- In times of financial challenges, a person should strive to have what he needs versus what he wants. If you are in that situation, assess if you need some of the sources of expense that you have. For example, do you really need to have that monthly home magazine subscription? Do you need your current internet speed which costs higher or can you settle for the regular plan?
- Limit your weekend parties. If you go out with your friends every Saturday night to party and get some drinks, then it is probably time to stop or limit those so you can keep your money intact during the weekend.
- The problem with people who have credit cards is that they are tempted to buy even if they cannot afford it or if there is really no reason to do so. Because of this, it is recommended to cut your credit card to prevent yourself from incurring unnecessary expenses.
- Walk or take the public transportation instead of bringing your car. This will allow you to keep the money you should spend on gas and parking fee.
If you’re really on a tight budget, consider trying to add additional income streams to stay afloat.
- LED lights are known to consume lesser electricity than the regular lights. Use a dimmer as well to control the amount of light that you need. The amount of light will determine the electricity consumption hence, the dimmer the light is, the lesser energy is consumed.
- Aside from keeping the fridge closed, your fridge and freezer will also perform better and consume less energy if they are full. Food and drinks inside your fridge and freezer serve as insulation that can help lessen the time it needs for the fridge and freezer to run to keep it cool.
- Use electric fans instead of the air-conditioning unit. If you really need to use your AC, turn it off when it is already cold and use a fan to let the cold air circulate in the area.
- If you have a big yard, let your clothes dry in the air while hanging outside instead of using the dryer.
- Let nature help you bring your electric bill lower. During the day, let the sunlight in so you do not have to turn on the lights in your room. It will also be good if your house is covered with big trees so there is shade from direct sunlight. This will help cool down the temperature in the house, thus limiting the need to operate your AC.
- Unplug appliances when not in use as they still consume electricity even if they turned off.
There are several apps that a person can use daily to spend less. We have presented some of them below for your reference.
- Mint – this application allows a user to monitor all his finances from all his active accounts such as savings, checking, retirement, and the likes. A user can simply log the transaction and it will automatically record and categorize it based on the data that will be provided. This is available both for iOS and Android users.
- BillTracker – this application will prevent you from missing your payment due dates. It can be password-protected for the user’s privacy. This application has been designed to send notifications when a user has pending payments. This application is available to iOS users only.
- YNAB app – YNAB stands for You Need a Budget. This application, as the name suggests, help you budget your money daily. It will help you monitor your spending and give you an analysis later. This is available both for iOS and Android users.
- Shopkick – This application is already being used by more than 6 million users to look for products, search for inspirations, and find great offers. Using this application in purchasing products makes a user eligible to earn some points, which can be used as gift cards. This application is available both for iOS and Android users.
- Ibotta – This application gives its users real money when they shop using this app. As soon as the sale is verified, the money is deposited to the user’s PayPal account or given as gift cards. This application is available both for iOS and Android users.
When a person has some financial obligations, the question that comes to mind is, should that person pay off all his debts first or should he start saving as well on the side? Financial experts recommend to get rid of all the debts first before saving. If you’re in a situation where you currently have an existing amount of debt, you need to know that the interest on that debt is the cost of owing the money.
If you’re currently owing $4,000 at a 10% interest rate, owing that money costs you $400 every year. If instead of paying down that debt, you decide to take on a smaller mortgage as a consequence of not paying off the debt, you may owe less on your mortgage, but if the interest on that loan is smaller than the other loan, you’re losing out on money.
If you had rather paid off the 10% interest loan, and gotten a bigger mortgage at 5% interest rate, instead of paying $400 per year for that amount of money, you would now only be paying $200 per year.
Therefore, if you are very insisting on buying the home, and you already have the down payment needed for the home you want, your best option is to owe money where the interest rate is the lowest. There may be either conditions, costs or other considerations related to consolidating your debt in such a way that would make the equation more difficult, but usually you’ll be better off owing where the interest rate is the lowest.
If you have set a personal goal to save $5000 per year in order to be able to buy the home that you want, it helps to break this number down so it may seem easier to wrap your mind around. Rather than thinking of it as $5,000 per year, roughly think of it as $420 per month. Now that we’re at this number, let’s break it down even further, as $420 comes out to $14 per day that you someway or another need to find in excess consumption.
For example, if you spend $5 on a coffee every day, try cutting that out, and you’re already one third of the way towards your goal. Categorize your spending to see where you’re spending the most on, and then try and see if you’re either spending a surprising amount on stuff you really either don’t need, or if you are rather able to cut down on some of the bigger categories instead. The more you are able to figure out that you may in fact be spending money on things you don’t need, the easier it will be to get to that goal you’ve always wanted.
Consider joining this 52 week challenge to make it happen!
how much money should i save for a house
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How long will it take you to save the other 20K
5-6 months. Buying the house within a year.
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more important question in this scenario (and likely to be a contentious one) is if the smart thing to do is putting 70k down.
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What percentage of a house value do you consider smart? 10%? 20/
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What percentage of a house value do you consider smart? 10%? 20/
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put 20% down & you avoid PMI
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Capital One 360 (formerly ING Direct) is a savings account that pays .75. They also offer a money market account (FDIC covered) that pays 1.1 percent right now. Great place to park extra cash that you can access any time you want.
How Much Should I Save Each Month? – Prioritizing Your Savings
Perhaps you have a new job, are a newlywed, or have recently committed to a personal savings plan. Whatever your life stage, you’ve surely heard that regularly contributing to savings is an important financial strategy. You know to save for emergencies, retirement, college, and large purchases such as cars and homes, but where do you start? How much should you put away from each paycheck, and how do you prioritize your savings goals?
Every situation is different, but figuring out the details of how much to save on a regular basis isn’t difficult. Once you’ve established a savings strategy that will help meet your family’s financial goals, start saving immediately.
If you haven’t yet started saving, begin earmarking money for savings with your next paycheck. It is much easier to establish this habit before you get used to spending your “extra9rdquo; money.
The easiest way to begin regular savings is to arrange an automatic payment from your checking account to your savings account. Set up automatic savings payments to occur as soon as your paycheck hits your account, which eliminates the temptation to withdraw or spend it. Depending on what the money is for and when you will need it, your savings can grow in a high interest savings account, a certificate of deposit, or a tax-sheltered savings plan.
One way to figure out how much to regularly divert to savings is to use the bill method. First, identify your gross pay and net pay (net pay is the amount that is deposited after deductions). As deductions for individuals differ according to income tax bracket, employer plans, union dues, and other expenses, nailing down a precise net savings goal from each paycheck is difficult. Instead, treat your savings contribution as a bill to be paid before everything else.
Calculate 10% of your gross pay – the amount before taxes and other deductions – and set up automatic savings based on this figure. For example, if earnings before all deductions are $1,500, earmark $150 for savings. 10% is the starting point for savings. If you can save more, you will attain your goals faster.
Another method to determining how much to save is the budget method. After deducting all fixed and variable expenses from your monthly budget, earmark the remaining funds for emergency savings, your retirement account, and any other savings funds. Using the budget method to determine how much to save can also help you to identify expenses to cut back on, especially if you struggle to reach the advised “10% of gross pay” savings mark.
While you are free to prioritize your savings however you like, it is highly advisable to save first for emergencies and retirement before moving on to savings for education and major purchases.
No one likes the idea of a financial emergency, but at some point in your future you will be faced with unexpected costs such as home repairs, car repairs, and medical bills – and could perhaps even face job loss. While everyone should have emergency savings, how much you should save varies. A good starting point is at least six months’ worth of expenses – but in many circumstances, you’ll want to save even more than that.
Experts suggest your emergency savings amount should represent between nine months to one year of living expenses. Families with children or those who rely on self-employment income, commission income, or just one wage-earner should save at least one year’s worth of income for emergencies. While some people plan to use credit cards or credit lines to fund an unexpected financial crisis, this is an expensive and temporary solution, as these are simply loans that require repayment of the amount borrowed plus interest.
Save at least 5% to 10% of your gross paycheck until you reach your emergency savings goal, and then redirect your emergency monthly savings to your other savings accounts. Since emergency funds should be easily accessible, a high-interest savings account is a good place to save your money.
It may seem like a long way off, but saving for retirement should begin as soon as you start working. There are many different views on the amount of money needed for retirement, but saving 10% of your gross income has been a common goal of investors for years. If you have multiple savings goals, such as an emergency fund and a retirement fund, don’t focus on one to the exclusion of the other. Contribute to both until you meet your emergency fund target.
Given the increased life expectancy of Americans and the uncertainty about the future of Social Security programs, today’s young people should save as much as they can towards retirement. Adding even small amounts to a retirement account can make a big difference to your retirement fund due to compounding investment gains that won’t be taxed until they are withdrawn from the account.
Begin by investigating your employer’s retirement plan, and look into other retirement savings options such as an IRA or a 401k. If you are struggling to build savings and pay down debt, create a family budget and find ways to cut back on expenses and increase your monthly income. Increase retirement savings contributions gradually as you meet emergency savings goals, pay off debt, and receive pay increases. And don’t even think about letting your retirement account double up as an emergency fund, as there are harsh penalties and taxes to pay when you access retirement funds early.
When your emergency savings goal is met and you are making regular contributions to retirement savings, it’s time to address your other goals, such as making a down payment for a home or buying a new car. Prioritize your goals according to what will benefit your family the most. If a car allows you to commute to a better-paying job resulting in more take-home pay, save for it first.
- Saving for a Car. You may want to consider buying used instead of new. Unlike your mortgage payments which are tax-deductible, there is no tax benefit to having a car loan payment, and the value of your car decreases a lot faster than your loan balance would.
- Saving for a Down Payment. To supplement your own savings for a home, you may qualify for down payment assistance through United States Housing and Urban Development (HUD), which offers a variety of programs and grants for home buyers. In some places, such as Memphis, Tennessee, or South Bend, Indiana, property values have plummeted more than 40% since the 2008 recession, providing opportunities for diligent savers to buy a home without a mortgage loan at all.
The more you save for a home or a car, the less you need to borrow and the less interest you must pay – so save as much as possible. If you can live with your parents for less than market rent, or are a double-income couple who can live on one spouse’s income and save all the take-home income of the other spouse, do it.
Helping children pay for college is another common goal for parents. Once you are meeting your regular retirement contribution goal, begin saving by making regular contributions from each paycheck to a college fund such as a tax-advantaged 529 savings plan.
Encouraging your child to save for their own education helps instill the savings habit from a young age. If your child receives money as a gift, add a portion of these funds to their education account. Like retirement savings, beginning education savings early allows interest to compound.
Though the dollar amount you should save from each paycheck is unique to your particular circumstances, studies show that the savings-to-income ratio of Americans doesn’t vary a great deal. In a 2010 study carried out by the Federal Reserve, respondents felt their “rainy day” savings should range from 9% to 14% of their annual incomes, in keeping with recommendations by many financial experts.
Don’t be frustrated if you can’t immediately meet your monthly or biweekly savings goals. Just save what you can. The important thing is to get started now, save regularly, and establish a healthy habit that will contribute to your future financial well-being.
How much do you think should be set aside for savings from each paycheck?
How I Answer This Question: “How Much Money Should I Save?”
Savings bank | Source: iStock
With the exception of discussing hypothetical lottery winnings, most people don’t enjoy talking about money. In fact, society labels it a taboo topic. Money is dirty, complex, and supposedly the root of all evil. I’m always pleasantly surprised when someone brings it up first in conversation.
A poll from Wells Fargo finds 44% of Americans say the most difficult subject to talk about is personal finance. People would rather talk about death (38%), politics (35%), religion (32%), taxes (21%), and personal health (20%). That’s a bit puzzling since America is home to the world’s largest economy, stock exchange, and bond market. Wells Fargo, based in San Francisco, is the most valuable bank on the planet. Given these conditions, you’d think money would make for a good discussion.
Since I read, write, and breathe personal finance for a living, a friend or acquaintance will once in a blue moon ask me a question regarding money. Sometimes it’s about what the stock market will do (as if I have a crystal ball), other times it’s more reasonable questions about different types of retirement accounts. My favorite question is: “How much money should I be saving?”
It’s a broad question considering everyone’s financial situation is different. After all, we call it personal finance for a reason. But, I try to always give the same, applicable answer: “Save 10% of your income to get started, and at least 20% as you improve your spending habits and budget. Ideally, you should save as much money as reasonably possible.”
The 10% starting point creates a realistic goal that anybody can achieve, and even calculate without grabbing a calculator. A ten percent savings rate is likely not enough to ensure your financial future, but the first steps are the hardest. Small victories lead to bigger triumphs. Two in three Americans don’t have enough money in their savings accounts for a financial emergency, such as a $500 car repair. Nearly half of Americans think they need at least $50,000 to justify working with a financial advisor. Baby steps are needed.
Once you’re in the saving mindset, it’s within the realm of possibility to achieve a 20% savings rate. Sure, you may have to plan your grocery list more carefully, avoid cars that take 5 years or longer to pay off, and find ways to earn additional income, but the day will come when you’ll need to retire. Due to compounding returns, the longer you wait to get serious about saving money, the harder you make it on your future self to afford life.
The last part of my answer is the best part. What does it mean to save as much money as reasonably possible? You should take a realistic look at your wants and needs, and decide if you’re getting the most value for your buck. More often than not, the expensive shiny things we desire fail to provide long-term happiness. Like the Chinese proverb says, “A small house can hold just as much happiness as a big one.” Once you recognize that simple truth, you’ll find yourself being able to save more money than previously thought. There’s no rule that says you can only save up to 20% of your income.
Just because we live in a consumer-driven economy where instant gratification is marketed as a happy pill, doesn’t mean you have to swallow the status quo.