Today’s column continues our series of up-to-date tips and reports, which will help a family, prepare a reasonable, affordable financial plan with a goal of achieving financial freedom.
Saving money is critical to your family’s financial future. Despite the challenges of often stretching income to pay bills and perhaps feeling there simply is not enough money to build savings, it is important to know that savings is the first step of good money management. Savings is an investment in yourself and your future.
The FDIC Money Smart curriculum talks about the concept of “Paying Yourself First.” Paying yourself first means that when you get a paycheck, you put some of that money in a savings account before you pay your other bills.
Benefits to paying yourself first:
- Learn to manage money better.
- Save money toward goals you have identified.
- Improve your standard of living.
- Have money for emergencies.
Some of the major expenses people save for include: unexpected events such as loss of job, car repair, or hospitalization; down payment for a house, car, or other large purchases; postsecondary education; vacation; retirement.
If you don’t have enough money saved for future goals, emergencies and to retire someday, this is the time to become a better saver by following these tips.
- Consider “needs” versus “wants” – determine whether you’re buying products or services you really need. Give some thought to items on which you could spend less. Do you eat out at restaurants a lot? Can you cut back on daily expenses, such as coffee, candy, soda, or cigarettes? Do you have services you could do without, such as cable television or expensive cell phones?
- Make savings automatic – put a portion of every paycheck you receive into your savings account by using direct deposit or automatic transfer. You’ll be much less likely to spend the money that way.
- Pay yourself first – set aside money for savings at the beginning of each month, rather than waiting to see what’s left at the end. Decide on a percentage of your monthly income (for example, 5 – 10%) to direct deposit or transfer into your savings account.
- Put “extra” money into savings – if you receive any extra money, put it into savings. This extra money could be from a tax refund, a raise or bonus, or a gift. If you have paid off a loan, keep making the monthly payments – to yourself, in your own savings account!
- Pay your bills on time – when you pay your bills on time, you avoid late fees, extra finance charges, disconnection of (and re-connection fees for) phone, electricity, or other services. You also avoid the cost of eviction, the repossession of cars or other items, bill collectors.
- Avoid check-cashing stores – At $10 or more for each check you cash, this can add up to several hundred dollars per year. Consider opening a checking account at a bank or credit union instead.
- Save for retirement – If you work for a company that offers a retirement savings plan, participate. If you’re self-employed, set up a retirement savings account of your own.
- Avoid debt that does not help build long-term financial security. Avoid borrowing money for things that do not provide financial benefits or that do not last as long as the loan. Examples of such debt include a vacation, clothing and dinners out in restaurants. Examples of debt that help build long-term financial security include paying for college or technical education, buying or remodeling a house, buying a car to get to work.
- Save your change at the end of the day. Take that change and deposit it in the bank every week or month.