Developing smart money habits enables you to prioritize where to allocate your income. Saving and investing more money on a frequent basis will benefit you in retirement. These tips will allow you to save some extra cash and prepare for the future.
Budget
Tracking income and expenses is one of the most common and simplest ways people can monitor their spending. It’s an easy and efficient tactic anyone can do to help get their finances straightened out. Breaking down your budget into categories will allow you to visualize where you are spending your money.
Start with basic categories such as bills, food, entertainment, etc. You can break these categories down even further into subcategories such as groceries and dining out, rather than just food. Set a realistic limit on what you want or need to spend on each category and do your best to stick within your budget.
A helpful way to stay on track with a budget is to utilize phone apps such as Mint, PocketGuard and Wally. These apps allow you to streamline your spending and accounts into one location. They also let you customize a budget, track your spending and alert you when you go over budget. Do some research on different apps and test them out to see which one works best for you.
Emergency Fund
Emergency funds are extremely important and help prepare you for the unexpected. What if you get in a car accident? This may result in expensive car repairs and medical expenses. What if you lose your job? Paying your bills and putting food on the table requires money. Strive to build up an emergency fund with 3-6 months worth of living expenses. It is in your best interest to not touch this account unless it is for an emergency.
Invest First, Spend Second
An important rule to live by is the 10% rule, a rule that goes hand in hand with the motto, “pay yourself first.” Before you pay your bills, buy groceries or make any purchases, you should save and or invest 10% of your paycheck. Although 10% may not be attainable for some individuals, it is still recommended that you save a portion of your income even if that means reducing the savings percentage to 9% or less. If you can afford to save more than 10% you should consider increasing that percentage to a reasonable number within your comfort zone.
As you receive promotions or bonuses, increasing contributions to a retirement account, investment account or savings account is an efficient tactic to help reach your retirement goal. If you can afford to, you should make the maximum yearly contribution into all of your retirement accounts. Another smart way to allocate a bonus is by establishing a routine of automatically applying this extra cash to loans, investment accounts or savings accounts. While it may be tempting to take a year-end bonus and go on an expensive vacation or use it towards a shopping spree, it is a smarter financial decision to save all or a majority of this extra money.
Research Before You Shop
The next time you are shopping for something, make sure to research the product prior to making a purchase. Researching an item beforehand can help you save money and invest in quality products. It’s a great way to compare prices and see if there are any sales on items at different locations. Another reason why it’s smart to research before you shop is because of the quality of products. Thanks to the internet, reading reviews on products has never been easier and can help you gauge if the product’s quality is worth the money.
Coupons and promotional codes are an additional way to save money, they can be applied towards groceries, toiletries and numerous other expenses. Saving a few dollars here and there will add up over time.
Throughout the year there are always sales for holidays and certain events such as Black Friday, Presidents’ Day and Memorial Day. These holidays and long weekends result in sales at a majority of stores. Taking advantage of this can result in some great deals. For example, holding off on a shopping spree until a big holiday comes around can mean huge savings. Stores also offer random sales and clearance events throughout the year for various reasons. One way to ensure you don’t miss out on these sales is by subscribing to emails and checking in on stores’ social media accounts.
Plan Meals
Food expenses can take up a large portion of your money. Prepping for the week and figuring out how much you should be spending on food can keep you on track with your budget. Preparing your own food is a much cheaper option than take-out or dining out. By making cost efficient decisions at the grocery store you will be able to cut back on food expenses.
To help reduce the cost of groceries make sure to stick to a list at the supermarket, this will help you avoid impulse buys. Another tip for grocery shopping is to buy in bulk, this can save a few dollars each trip and allows you to stock up on large quantities of food that will last a long time. Using coupons, promotional codes and looking out for sales is another great way to save money each time you venture to the grocery store.
Once you have bought all of your groceries make sure to use them. Make breakfast at home, pack a lunch for the day and cook your own dinner. Take advantage of your freezer and store unused food there before it goes bad, this allows you to minimize waste and hold onto food for future meals. Planning out meals in advance will help reduce monthly food expenses. This also helps minimize ordering and eating out, which is an expense that can add up quickly.
Last but not least, reduce the amount and frequency of small daily purchases such as coffee, a bagel, etc. Instead, choose to make your own coffee and buy bagels from the grocery store. Cutting back on how often you make these daily purchases from 5-7 a week to 2-3 times a week or less is one way to make an improvement in your spending habits.
Buying a Used Car
The idea of purchasing a brand new car is something most people want to experience, but is it the smartest financial decision? When you purchase a new car it can lose up to half of its value after only 3 years of use. Instead, consider buying a used car that is in good condition. There are plenty of used cars with low mileage and cheaper prices that have been well maintained. If you plan to keep a used car for at least 10 years then this is the smarter financial decision to make.
High-Interest Debt
Many people have debt from liabilities such as student loans, car loans, mortgages, credit cards and many other types of loans. Choosing to make the minimum payment each month results in paying the maximum interest. The sooner you pay off a loan, the more money you have available in the future for investing. Putting extra money towards higher-interest debts minimizes the amount of interest you will pay over the life of the loan and allows you to put more toward paying off the principal. By prioritizing your highest-interest debts and paying them off first you will save money in the long run.
In general, it is always best to avoid any interest payments if possible. Most people use at least one credit card. A rule of thumb to follow is to only make purchases on your credit card that you know you will able to pay off at the end of each month. Credit cards normally carry one the highest interest rates. According to USA Today, as of May 2018, the average credit card interest rate reached 16.71%. Credit card debt can be steep with interest rates so high, be cautious and make wise purchases with your credit card to help avoid paying interest.
A Shift in Retirement Mindset