The biggest secrets for saving money are old-fashioned. It’s still about living below your means. But don’t underestimate the power of the mind when it comes to saving and spending.
Throughout the years I’ve developed a few money habits that have allowed me to save even when I didn’t really want to! I’m not an automatic millionaire yet, but I know I will get there. And I think it’s doable for anyone with a feww secrets for saving money.
The biggest money secret is automatic investing. When 10 percent of your paycheck automatically goes to your Roth IRA or 401K, you will feel as though you never had that money. Yet, your retirement account is slowing building. When you have money automatically moved from checking to savings every month, you will be able to save for a car, house or other goals without even thinking about it.
Here are three important steps for saving money:
Step 1: Set a budget. Figure out how much money you have coming in and how much goes out on bills. Be realistic about your how much money you need every month for necessities and entertainment.
Step 2: After you determine how much money you have leftover every month, write down what your short term and long term goals are and why you need to save money.
No. 1. Save money for car and car expenses
No 2. Save money for college or kids’ college
No. 3. Save money for house or home repairs and renovations or upgrades or pay off mortgage
No. 4. Save money for retirement
No. 5: Save money for emergency fund
Step 3: Set up automatic savings out of your checking account and/or pay check for the various goals. Determine what you can afford to designate each month for each goal.
For car and car expenses, pay off your current car loan as soon as possible. Then take the car payment amount and save into either a regular savings account, a money market account or a mutual fund, depending how comfortable you feel with investing or depending how long you have before you need a new car. For college savings, follow the same rule or look into college savings plans. Buy a home you can afford.
It’s not what you make, but what you keep
For retirement, it’s important to save at least 10 percent of your income. If you have a 401K with matching contributions, the rule is to invest up to the amount your company matches and then max out a Roth IRA (You can usually contribute $5,000 into a Roth per year). If you have extra money, you can contribute more into your 401K.
For people who are strapped for extra money, use the Roth IRA for an emergency fund. You can take out the money you have put into the account without penalties or fees, but you can’t take out the interest earned unless you meet certain criteria.
Saving money is not the same as spending money on sales
Finally, a much neglected secret to saving money has to do with spending money. Many people think they are saving money because they used a coupon when they bought something or shopped a Black Friday sale. It’s not saving money when you spend money. Spend money only when you have planned it out as part of your budget and when it does not conflict with your savings goals.
If you aren’t comfortable with your lifestyle, the solution is not to use credit cards and accumulate debt , but to find other ways to make money so you can always live within your means.
Delayed gratification is also important. I actually made twice as much money in my twenties but no one would have believed it. I rented an inexpensive duplex (read dump) compared to now when I live in a new home about three times as large. Living below my means allowed me to save and invest for the future homes. Remember, the more you save early in life, the better off you will be. And you will always be ready for any curve ball life throws.
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