Tuesday, April 9, 2013
The Basics of Saving Money
Getting your money together can be one of the easiest things for you to do and allows you to do more with your money. Whatever your income level, you should maintain control of every dollar that you earn and spend. Here's how:
Checking Accounts and Debit Cards -
This is the one that most people have and use ineffectively. Many people use their checking account not just as a wallet extension but also use it to pay every bill that comes in. This is why many people cannot handle their bills on time. In order to use your checking account to it's fullest you should have two- one for bills and one for spending. Many of the most organized people set aside budgets in different accounts so they do not overspend money that they will need later on. Done correctly you will be able to direct deposit your paycheck into the right accounts and you will never spend money that is meant for your bills because it is not accessible through your 'spending' checking account. Be sure to shop around and find the account with the best rates and ask about minimum balances and deposit balances and fees before you commit to a bank.
Savings Account -
This account should stand alone and never be linked to your checking account. Personally, I deposit 10% of my paycheck into my savings account and just watch it grow. Remember that there may be fees for withdrawing more than a certain amount of times during the month in some states so be sure that no matter how much you save it is a comfortable enough amount that you will not be hurting for money and be tempted to dip into your savings. Over time even 5% of your paycheck will add up so be sure to save as much as you can because you never know when you will need the money!
You don't need a financial advisor to tell you that starting to save for your retirement is a good idea. I put about 12% of my income into my 401k and did my own research into a portfolio mix that fits my age and investment style and the returns definitely beat interest rates for savings accounts. I suggest saving at least the minimum amount matched by your company and definitely do not borrow against your 401K. The tax penalties on withdrawal are too high and should only be used as a last resort. Your savings account should have enough in it that you can afford car repairs, emergency medical bills and other unexpected expenses. Start saving now and you will be leaps and bounds ahead of most of your peers.
These are the first accounts that any young person should have. You can always put aside more of your income later on and start investing but you want to form a rock solid base for your financial freedom.
These are the same principles I shared with my friend and she's already started to see the difference in how she spends her money. It is not that she was wasteful, she was just unorganized. If you want an example of how I saved over 700 in one hour head on over to my article: How I Paid for (Most of) My Vacation in one hour!
'Till next time, live smarter, not harder!