Building a savings account
One of the best and smartest ways to save is to open a separate savings account
specifically for your savings fund. If at all possible, jump-start the account
with a lump sum, such as a tax refund. Have a certain amount auto-debited from
your paychecks and deposited directly into that savings account. That way you
never see the money, so there is less temptation to spend it. And of course
you'll be earning interest!
a.. If you put $25 a week into your savings account and earn 2% interest
compounded daily, you'll have $1337 in the account a year after you start
saving, and $2677 in two years.
a.. If you're able to "jump start" the account with $500 and then add that $25
a week at 2% interest, you'll have $1847 in your account a year after you start
saving, and $3197 in two years.
By the way, it is very worthwhile to shop around for the best banking deal.
Other Ways to Save in Small Increments
Here are some additional, relatively painless tricks people use to get
themselves to save. It's all about setting priorities -- and in some cases,
tricking yourself into saving. What works for one person, won't work for
another. Try one, or try 'em all. Remember, every penny helps!
Buy US Savings Bonds
You can purchase them online and spend as little as $25 each time. US Savings
Bonds must be held for at least 1 year before you can cash them in. There is a
3-month interest penalty if you cash an EE or I Bond within the first five years
from its issue date. There is no penalty for cashing EE or I Bonds that are at
least five years old. Bonds pay very good interest compared with a regular
savings account and since they are issued by the government, they are an
extremely safe investment.
The Change Jar
Make a rule that you never spend coins. Save all your pocket change and throw it
in a big jar. Label the jar to remind your of your goal. Periodically you can
roll the coins and see how much you have. (This is a great job for kids.) Once
it's rolled, put it in your savings account.
If you don't want to roll the change, see if your bank takes unrolled change.
Some banks have change-counting machines and they'll count your coins for free
or for a very small fee. There are CoinStar machines in many grocery stores that
will allow you to dump in a ton of change and get a slip redeemable for bills at
the cashier, but you'll pay a hefty premium (somewhere around 9%) for the
service; if you do this, at least pluck out the quarters and roll those!
Variations on the change jar: Never spend quarters, or never spend dollar bills.
Put those in the jar.
Checkbook Games
When writing a check, round up your checkbook entry to the nearest dollar. For
instance, if you write a check for $57.12, record it in your checkbook as $58.
Not only does this help you prevent overdrafts, it also means you're
accumulating a little extra in your account every time you write a check.
Another good thing about this method is that you're earning interest on that
extra money, assuming you have an interest-bearing checking account.
Round down your deposit entries to the nearest dollar. For instance, if you
deposit $300.91, record it as $300. Again, you're accumulating a little extra
"ghost" money in your account.
A variation on the checkbook rounding method: charge yourself a dollar every
time you write a check, plus round up. So if the check was for $47.39, round it
up to $48 and add a dollar, making the entry in your checkbook $49.
Another variation on the checkbook rounding method: round up to the nearest five
dollars. So if the check was for $52.23, round it up to $55. If it was for
$9.51, round it up to $10.
More Tips and Tricks
If a payment ends, keep making it -- to yourself! For instance, if you pay off a
car or a credit card, keep making that payment, but instead write the check to
yourself and deposit it into your vacation savings account.
Make a rule that "found" money goes in the savings fund. For instance, if you
get a rebate, tax refund, gift check or work bonus, deposit it in the savings
account.
Give yourself an allowance for cash expenditures (i.e. groceries, gas, meals
out, entertainment, etc.) and make a game of seeing how much of your allowance
you can NOT spend. Anything left over at the end of the week (or month) goes
into the vacation fund.
Charge everything to dividend paying visa or a cash-back credit card and pay the
card off each month. (Only do this if you can handle the temptation to overspend
on plastic, and if you really will pay the balance off every single month. If
you won't pay it off monthly, this is a bad idea.)
Cut out one small daily expense and put the money you're saving into your
savings fund. The savings can really add up. If you save $1 a day on something
you buy at work, and you work 5 days a week x 50 weeks, that's $250 a year! For
example:
a.. If you drink a cafe latte every morning, buy a travel mug and fill it with
strong coffee and hot milk at home instead.
a.. If you usually eat lunch out or buy lunch at a deli, try bringing lunch
from home at least 2 or 3 days a week. If you just can't get it together to make
a lunch, at least try bringing a can of soda from home instead of buying one at
the deli or out of a machine.
a.. Bring a snack from home instead of hitting the vending machines.
a.. Giving up smoking may save you enough money in a year to fund a family
vacation. I'm not kidding! If you're smoking a pack a day, you're spending at
least $800 a year on cigarettes. In places with high tobacco taxes, you're
spending $1600 or more.
Ask your family to help you save. Often children aren't very aware of how much
small expenses can add up over time. If you point out that every nickel they can
save the household will get them closer to acheiving a dream, they may surprise
you! Solicit their ideas and suggestions, and then agree to put aside what
you've saved for your savings fund. Be sure you have a plan for keeping the
saved money separate, so that it doesn't get spent elsewhere. That might mean
writing a check for the amount of money saved and depositing it into your
savings account, or putting that amount of cash into the change jar. Whatever it
is, do it consistently.
Here are a few ideas your family might consider:
a.. Spend less on entertainment. Borrow videos from your public library
instead of the video store: most public libraries offer this service for little
or no cost. Instead of going to the movies, check the newspaper for free local
family entertainment and events, or have a family game night.
a.. Eat out less. Face it, cooking every night can be tiring and a drag, and
that leads to eating out, which is much more expensive. So find a way to avoid
this. Think up something you can make in the crockpot one night a week instead
of getting takeout. Or turn cooking into a fun project once a week -- for
instance, make a pizza with the kids instead of ordering one.
a.. Use grocery store coupons. Particularly if you live in an area like
Southern California, where the major supermarkets will double the value of
manufacturer's coupons, you can't afford NOT to clip coupons out of the Sunday
paper! I do this, combined with buying sale items and seasonal produce, and
frequently save 40% or more on my grocery bill. Seriously, 15 minutes of effort
and a $5 coupon organizer can save you an amazing amount of money. Kids who are
old enough to use scissors can certainly cut out coupons. Older kids can also
sort and file coupons in your coupon organizer.
a.. Sell your junk. Have a big garage sale. Take still-in-fashion clothes to a
consignment shop. Sell unwanted books, CDs, movies and collectibles you no
longer want on eBay. You'd be amazed at what your old stuff may bring. Don't
assume no one wants it. (I once sold a ratty bathmat the dog had chewed up,
which I was using as a rag, for a quarter. It wasn't even part of my garage sale
-- someone just noticed it lying on the ground and offered me money for it!)
a.. If you are a family of recreational shoppers, start going to garage sales,
consignment shops and thrift stores instead of the mall. One person's trash is
another's treasure, remember? There is often good stuff to be had at these
places! Take a certain amount of cash and don't spend more. You'll get the
thrill of the hunt and the thrill of the bargain, but for much less than a trip
to the mall.
a.. Shop around on your insurance at least once a year. It's remarkable how
much you can save. Rates for an identical auto insurance policy can vary from
one company to another by as much as 100%! An easy way to shop around is to use
an online site such as InsureMe.com, which will get you quotes from several
insurance companies. I used this site to shop for life insurance and ended up
with a great deal from a top-rated company.
a.. Evaluate your spending on cable television and telephone services. Maybe
you don't really need extended cable or call waiting. Check rates to be sure
you're not paying more than you have to for long distance calls. Take a look at
your long distance provider's web site (or call them) and find out if there's a
better deal available for you. I switched to a plan that gives me unlimited long
distance for $20 a month! If you have a cell phone, see if there's a better plan
for you, that fits your usage patterns at a lower cost.
a.. Get everyone to turn out the lights when no one is in the room, and turn
off TVs, radios and computer equipment when they're not in use. Fix dripping
faucets and leaking toilets. These measures may only save you a buck or two a
month on your utility bills, but it all adds up.
a.. Encourage "gifts of love" instead of store-bought gifts. For instance,
give each other certificates for back rubs, car washes, and other kind gestures
that cost you nothing but your time and effort. Or set a low limit (like $5) on
gifts and see how creative you can get.
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