A comfortable house in the suburbs, a substantial vacation, a new car — these things are not only costly, they can also come with a huge tax penalty. Many people — particularly those who are low- or middle-income — never have money left over at the end of each month. Sometimes, it’s a result of budgeting incorrectly. Other times, it’s due to the constant barrage of headlines that offer up tax-saving tips for anyone who isn’t rich.
While the ultra-rich do pay more in taxes, even the low- and middle-income earners can save a significant amount of money.
Here are ten of the most important ways to save more money:
1. Pay Yourself First
Most of us pay our bills with the rest of our money, and it’s actually fairly easy to finance this debt. However, you can significantly reduce the amount of interest that you pay by taking a portion of your monthly salary and setting it aside for personal use, whether it’s for food, a home loan, a new car, or a year-end trip.
Most of us can save between 4% and 10% of our monthly income without experiencing any change in lifestyle. While many people avoid such small luxuries, they will make a huge difference over the long term.
2. Make a Monthly Budget
Most people who are planning to save money will have to first develop a budget. You may have a friend or relative who simply took out a $500 loan or paid a lump sum to their credit card, but this is not a good way to develop a budget. Instead, look at your budget and see where you can save. Then, develop a plan to achieve that goal.
A good budget should set aside at least three months of your income. If you think you’re financially savvy, you can estimate this amount yourself. However, if you want a more accurate number, you can seek the advice of a financial professional.
Once you’ve established a budget, find an app that works for you. Some people love to use Mint, while others enjoy the quick and easy features of PocketGuard. Regardless of what type of app you use, you can set a schedule for your budget, and create a custom budget on an as-needed basis.
3. Stay Organized
Avoid the temptation to splurge if you know that you have a large amount of cash available. That way, you’ll have a much greater chance of saving money on the things that matter to you most.
If you’re in charge of your finances, you should have an annual plan to keep your bills paid on time, your credit score high, and your credit utilization low. This will help you to manage your finances at a lower cost, and to stay on top of things at a minimum cost.
There are also many tools that you can use to track your spending in an effective manner. This will help you to become more conscious of your spending and to prevent you from being led astray.
4. Build a Solid Savings Plan
While an emergency fund is essential, a good savings plan is just as important. Most people don’t have enough money set aside to cover their basic living costs for two weeks, and they live paycheck to paycheck.
The first step to improving your savings situation is to figure out how much money you should have set aside in case of a financial emergency. For many people, this number will be one month’s salary. If you have your heart set on a retirement account, that figure might be more like six months of salary.
Once you’ve established a target for your savings, you should put it aside for at least six months. If you have extra money, you should put it into an IRA or 401k instead of a regular bank account, to increase the possibility that it will grow to a significant level.
5. Use a Budget
Next, you should devise a budget that provides you with adequate savings for your financial goals. It doesn’t matter if you have a sizable home, a family car, and a computer system that costs thousands of dollars each month — if you don’t have a budget, you won’t be able to realize any of your savings goals.
A budget should include such things as your bills, basic living expenses, and the amount of money you should spend on leisure. A budget also helps you to determine the number of months or years that you need to save for your goals.
6. Avoid “The 50-Cent Plan”
Unless you are independently wealthy, it will be difficult to avoid spending 50 cents out of every dollar you earn. Many of us prefer to save every penny we earn, but it can be very difficult to do so in a responsible manner.
If you get paid $1,000 a week, you might not be able to stop yourself from buying a coffee every day. You can manage to save up more money, but you’ll probably have to sacrifice some of your spending. Your budget should account for your actual expenses, rather than your ideal spending goals.
7. Re-evaluate Your Spending Plan
Every month, you should evaluate your budget and make adjustments where necessary. If you always pay your bills on time, it’s possible that your monthly bill is excessive.
Answering the following questions will help you identify where you could make an adjustment:
• Does the amount of money I am paying every month provide me with enough value to make the payment worth it?
• Is there another way to spend the same amount of money that I’m currently paying for these services?
• Is the service I am currently using still as effective as it used to be? If not, I might consider cutting costs.
• Am I using my car as much as I used to? If I’m not, could I use it for something else, such as taking the bus or walking?
As you can see, there are many ways that you can invest your money for financial growth. Although saving money isn’t easy, it can be achieved if you apply yourself and have the right mindset.