Saving Money: 10 Major Ways To Increase Your Nest Egg
One way to accumulate assets for retirement, education or other major goals is to reduce your spending. Studies have shown that these savings can add up over the years to a substantially increased nest egg.
The familiar expression "A penny saved is a penny earned" overlooks the impact of taxes; a saved penny is, in fact, worth more, often much more, than an earned penny because you pay tax on an earned penny but not on the penny you save.
Thus, tax-free savings, with earnings compounding over the years, can really increase your nest egg, making it worthwhile to explore the following money-saving techniques.
This Financial Guide provides you with 10 tips for making sure that more of your money is slated for saving and investment. More important, it provides you with links to other Financial Guides that help you implement these tips and maximize the ultimate return.
1. Prepare A Financial Plan
While most people appreciate the importance of a financial plan, too many put it off to the tomorrow that never comes. It is important to identify your goals and determine how best to achieve them. A financial plan can help you do this.
Use an automatic savings plan to make sure that you save a percentage of your paycheck every payroll period. The percentage should be determined by your financial planning needs. Some people need to save 10% of their gross pay, while others need to save more. If the amount saved goes to a 401(k) plan or other tax-deferred plan, so much the better.
But don't stop with automatic savings. Put aside everything you can. If you invest $50 a month in a mutual fund, you could have as much as $25,000 in ten years, depending on the rate of return.
Tip: A well-thought-out budget will help you determine how much you should and can save.
Consider paying down your mortgage. For most people, paying down a mortgage is an effective way of saving and increasing net worth. Decide that you will pay $100 or $200 per month or more in mortgage principal, and do it faithfully.
Consider refinancing your mortgage. See if you can save money by refinancing your mortgage. Go through the calculations and see whether the reduction in your monthly payments would be worth the costs involved with refinancing. The general rule is that a reduction of at least two points will make it worthwhile to refinance, if you intend to stay in the house for at least five years.
To save interest, consider replacing your consumer debt with a no-fee, no-points home equity loan. However, bear in mind that you are putting your home at risk.
There are many ways to reduce your bank fees. Consider:
Is your checking account resulting in wasted fees? Find out what you need to do to get free checking and free ATM usage and do it. Keep a minimum balance in the account, and use only ATMs at your own bank, for example. You may want to join a credit union instead of using a bank, since credit unions typically charge less for banking services.
Don't keep too much money in a low-interest savings account. Find out how much money you'll need access to in an emergency, three to six months' worth of expenses, and keep only that amount in savings. The rest of your funds should be put to work.
When ordering checks, don't order them through your bank. Many check printers charge less for check orders than the printers used by banks.
Tip: Stop using your ATM card if you find you are withdrawing too much cash. Make yourself go to the bank and withdraw the money instead. This may help you to spend less cash.
Here are some ways to save on insurance of all types:
Do some shopping for a life insurance policy. It pays to check prices on life insurance policies periodically. Rates change frequently. Also, if you've quit smoking, you may be entitled to better rates after a few years.
Examine your life insurance needs to see whether you are paying for too much coverage.
Get rid of private mortgage insurance. Once you have enough equity in the home, ask your lender to cancel your private mortgage insurance.
8. Cut Your Utility Costs
Here are some thoughts to keep in mind in cutting utility costs:
Your utility may have a program that subsidizes making your home more energy-efficient. Look into this possibility. Even if there is no help available from the utility, it is worth it to caulk your windows and make sure your insulation is of a high enough "R" factor.
Use CFLs (compact fluorescent lights) instead of incandescent bulbs.
Keep the thermostat at the lowest (in the Winter) or highest (in the Summer) temperature consistent with comfort.
9. Cut Your Phone Bills
Today's cost-cutting competition among phone service providers offers many opportunities for savings on your phone bills, such as:
Make sure you're paying as little as possible for long-distance charges. Take the time to investigate which long-distance carrier will save you the most, and switch to that carrier.
Don't dial "Information." Look it up online or in the phone book.
Use e-mail or a VoIP such as Skype to correspond with relatives and friends.
10. Forego One Big Expense Per Year
For instance, skip your yearly vacation this year or take a less expensive one. Another way to save one big yearly expense is to swap an expensive health club membership for a YMCA plan.
