How to save money
From cable bills to everyday spending habits, these tips will help you save more, spend less and get on the fast track to financial success! Set goals. ... Budget. ... Negotiate prices. ... Slash excess spending. ... Cut monthly bills. ... Switch up your grocery routine. ...
Ultimately, it’s up to you to decide whether saving or investing is the better choice to reach your financial goals. But, for certain goals, one is better than the other.
To give you a general sense of the benefit of saving, here’s a note.
There are plenty of benefits to saving rather than investing. First, the dollar amount you save in a savings account won’t decrease over time as long as you don’t make withdrawals. This is important because some goals need to happen regardless of whether investment prices are up or down.
Saving rather than investing also allows you to reach your goal on time as long as you save the proper amount each month. Take the total you need to save and divide it by the number of months until you need to reach your goal to find the amount you need to save each month.
A savings account
is a bank account that allows you to set money aside and earn interest in the process. Some savings accounts pay a lower interest rate while other savings accounts offer higher interest rates that can actually help you grow your money.
Typically, online savings accounts such as those offered by Discover, CIT and Global Trust Bank offer higher interest rates than brick and mortar banks.
When to save and when to invest
Knowing when to save or invest can be difficult. Every person’s situation is truly unique. You should base your decision on your particular situation.
If you’re not sure what to do, you should consult a fiduciary financial advisor that can help you decide. However, there is a general framework that ends up working for many people:
Step 1: Build your retirement account
First, get your 401(k)’s or other workplace retirement account’s matching contribution. If your workplace matches the money you put into your retirement account, it’s essentially free money you shouldn’t pass up.
Step 2: Build your emergency fund
Next, build a small $500 to $1,500 emergency fund in a savings account. A small emergency fund is essential to help you stay out of debt for good.
Rather than putting small emergencies on your credit card that could dig you deeper into debt, you can rely on your emergency fund to cover small emergencies.
Step 3: Pay off debt
After you build your small emergency fund, pay off high interest rate debt. What you define as high interest rate is up to you, but definitely includes debt with interest rates 10 percent and higher.
Step 4: Max out retirement accounts
Next, invest and max out an IRA. It’s up to you whether you choose an IRA or a Roth IRA, but either way you should invest in a tax advantaged account. In 2018, you can contribute up to $5,500 per year and, if you’re 50 or older, an additional $1,000 per year catch-up contribution.
After that, max out your workplace retirement account. The reason you do this after an IRA is because you have more options for where to invest your IRA. You can choose where you hold your IRA and what it invests in while a workplace retirement account is limited to the options your specific plan offers.
