How to Increase Your Savings
Simple Ways To Increase Your Savings
1. Pay yourself back, with interest. If you have to tap your savings, aim to pay yourself back with interest. For instance, say you need to withdraw $250 of your savings and you figure it will take you two months to pay it back. At the end of two months, throw into your savings another $40 or so.
2. Moonlight for money: Figure out what you could do in your spare time to bring in some extra cash. Then take some or all of that found money and save it toward an important financial goal. Here are five moonlighting jobs and what they typically pay: kid’s party clown ($75 an hour and up); house-painter ($13 an hour); word processor ($8.45 an hour); pet or house-sitter ($5.50 an hour); and baby sitter ($5.25 an hour).
3. Earn a higher return on your savings: The higher the interest rate on your savings, the less you have to salt away each month to meet your goals. One way to earn more interest on your savings is to put your money in a CD or bond with a longer term than you had originally planned. Another idea: Make your annual IRA contribution every January instead of at the start of the following year. That way your savings will earn an extra 12 months’ interest tax-deferred.
4. Deposit your stash where you can’t easily get at it. The biggest enemy of savers may very well be the automated teller machine, or ATM. Sure it’s convenient and easy to use. But that’s just the problem. Your ATM lets you have instant access to your money any time of the day or night, and the more you withdraw, the less you have left in your savings. So try to limit your ATM visits to one a week. If you are saving for a short-term goal and like the idea of keeping your money at a federally insured institution, consider CDs, which carry penalties of up to six months’ interest on early withdrawals.
Those lock-up penalties actually serve as a useful deterrent against unnecessary savings withdrawals. If you are saving for a longer-term goal, take advantage of a tax-deferred savings plan. It will also discourage you from pulling money out by slapping you with a 10% penalty for withdrawals before age 591/2; in some cases you won’t be able to withdraw cash at all unless you can prove financial hardship.
More Tips
1. Skip one big expense a year. You might be able to realize some meaty savings simply by skipping your winter vacation, trading in your turbocharged sports car for an economy-type, or ditching your upscale health club membership and switching to the YMCA.
2. Hold a garage sale to raise cash. By getting rid of an old computer, TV, stereo, dining set, or exercise machine, you could earn $300 to $3,000 more in just a day or two.
3. Use your flexible spending account (FSA), if you have one. Don’t pass up the opportunity to pay medical and dependent-care expenses with pretax dollars through these accounts. A family of four is almost certain to spend $1,000 a year on doctors, dentists, and prescription medicines. Your tax savings if you pay these bills from an FSA can be at least $280.
4. Make higher down payments. When financing your next major purchase (a new car, new kitchen, etc.) put up as much money as you can and keep your borrowing down. By not financing $500 at 12% over three years, you can keep $98 jingling in your pocket; not financing $5,000 saves you $979.
5. Use a home equity loan to pay off high-rate debts. Replace consumer debts at, say, 18% with a home equity loan at 12%, and you’ll cut your interest costs by a third. In addition, the interest on a home equity loan can be fully deductible on your income tax return. Let’s say you consolidate $10,000 in car payments and credit card cash advances with a home equity loan. Counting the tax break, a taxpayer in the 28% bracket will save $936.
6. Pay in cash. This high-discipline technique will teach you a lot about the difference between what you want and what you really need. Moreover, by paying in cash, you avoid paying finance charges. For example, trimming your credit card balances by $500 this year can save you almost $100 in interest if your card issuer charges 18.6% interest.
7. Don’t pay for financial services you could get for free. Using only no-fee checking accounts, no-fee credit cards, and no-load mutual funds can save you $100 a year or more. For instance, checking accounts often run $60 a year; annual fees for credit cards typically range from $15 to $50.
8. Squirrel away your next raise. This tip is an example of the rule financial planners love to tout: Pay yourself first. To squeeze out money for your savings, earmark your next raise as savings toward a specific goal. If you earn $40,000, for instance, a 5% raise will give you $2,000 to set aside toward your baby’s college fund.