Saving Money

Saving money, is one of those things that most people, even if they are saving a decent percentage of their income, would probably like to do a little better at. Money is just one of those things where it is hard to feel that you have too much of it. Maybe Bill Gates does, but I  know most of my friends and family don’t.

Whether you have $100, $10,000, or $10,000,000 saved, you probably don’t feel like you are “done” saving money and can spend all of your income as you see fit.

Most people want to save more money than they are currently saving-certainly for retirement, but for other things too. Here are 10 ways to help you save more and develop a saving habit.

Make it a priority-

You can’t just want it to be a priority, or say it’s a priority, you have to make it a priority. This means you have to focus on the fact that you are trying to save money, or save more money.

Save First-

We’ve all heard the “pay yourself first” mantra, and there is a reason it is often quoted financial advice. If you pay yourself (i.e., save money) first, right after you get a paycheck or out of any other monetary payments you might receive (gifts, windfalls, etc.) you remove the possibility, however good your intentions are, that you will spend that money instead of saving it.

Make it automatic-

Making your savings automatic goes hand in hand with paying yourself first. I currently have a scheduled deposit into an online savings account on the same day I receive my paycheck. This allows me to “save without thinking about it”, before I pay my regular bills, buy groceries, or spend it on other things.

Set large and small savings goals-

Setting a goal helps you focus on something tangible, instead of just focusing on an abstract number in your checking or savings account. Setting small goals (a small purchase)  as well as large ones (retirement, for example) allows you to experience the satisfaction of saving for something and “rewarding” yourself more often than if all of your goals are large ones.

Review your savings goals regularly-

Along with setting a goal or goals, you need to make sure your goals are still the same over time. On a regular basis, whether it is several times a year, or once a month, review your savings goals.

Adjust your savings goals if necessary-

Goals are set at a certain point in time, and can be adjusted as time goes by. People change, and so do our savings goals. Allowing yourself to change what you are saving for, or how much you are trying to save can allow better results when saving money.

Cut back on spending-

Although a bit a cliche’, it holds truth. If you want to save more, spend less. Cutting back of spending can be a great way to increase or boost the amount you are saving.

Make more money-

Making more money is another straightforward way to allow yourself to save more money. Even though the economy is still weak, now could still be a great time to start a part-time side business.

Stay focused-

Keep the reasons you are saving money -whether it is saving up for a purchase, a vacation, or building your emergency fund clear in your mind.

Save last, too-

Although paying yourself first is a good way to save before you spend, if you have money left over after paying bills, etc., save some of that too!

One thing about saving is that you can always spend it later. If you spend your money first, you don’t have that option.

What are some of the things that you do (tips, rules, tricks, etc.) to save money?

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A few weeks ago, the company I work for announced a “freeze” on unnecessary expenses, or basically anything that was not absolutely necessary to get work done and/or directly billable to a project or client. Many companies around the world are taking such an approach, and also enacting hiring freezes, restrictions on nonessential travel, and even temporarily stopping 401k matches.

Why are companies enacting freezes on expenditures?

It all comes down to cash flow, available credit, and attempting to avoid layoffs, in my opinion. I am not talking about companies on the verge of bankruptcy that are blowing through cash without likelihood of recovery, like GM and others. Many businesses are good, stable companies, who are experiencing a downturn in revenue due to the sluggish economy, and may have had credit lines they use for payroll or other operating purposes reduced or even eliminated.

When these things happen, the fastest way to reduce expenses is to lay people off. The problem with layoffs, though, is that you lose people you may very well need when the economy starts to turn around, and you may lose out on new work due to a lack of manpower to get the job done, or you may lose people that bring in new work.

Ordinary people can follow some of the tactics employed by businesses or companies during trying times as well. Focusing on debt reduction, building up a larger emergency fund, and getting a little “leaner” with your household budget can help you weather the down economy and position yourself for the better times ahead.

Cut back on spending on nonessential items- Things which you don’t absolutely need, don’t spend money on.

Cut back on vacationing or travel- Instead of that two week vacation, plan a couple of short weekends or outings.

Don’t take on any new expenditures- Don’t sign up for any new, recurring expenses for a while.

Don’t hire anyone unless you have to- This one may not seem straightforward for an individual or family, but does someone cut your grass, wash your car, or do your dry cleaning? You may not want to eliminate things you have someone do for you because of the time you save or because you really don’t like doing that particular task, but think carefully before you “hire” someone else to do another task for you.

Have you put a freeze on any household expenditures? What are they?

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Unfortunately, another not so great financial trend (besides the stock market dropping lower and lower!) is continuing, the drop in interest rates for high yield savings accounts, the majority of which are online bank accounts.

Today, both ING Direct and HSBC Direct lowered the interest rates for their online high-yield savings accounts.

ING Direct has lowered their rate from 2.20% to 1.85%

HSBC Direct has lowered their rate from 2.45% to 2.25%.

Should you chase after the highest rate?

That depends on what is important to you. I have had an ING DIRECT account since 2002, and have been happy with the account and ING’s service since that time. I do have one other online money market savings account, but I have yet to open up other accounts to “chase the highest rate“, mostly due to the fact that I prefer keeping things simple.

One thing I do know, is that even the 1.85% ING offers is 18.5x what my regular  bank savings account offers (a pathetic 0.1% !)-which is tied to my checking account. So for me, the important thing is just having a high yield savings account, whichever one you choose and stick with, as opposed to settling for practically nothing with a local bank branch savings account. Compared to an 18.5x difference, a 20% difference between ING and HSBC is not so huge. There are other online banks that offer comparable or slightly better rates, so look around and try them out if you are looking for the highest return for your money.

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It’s really hard to predict the future. What I mean is, I am quite sure that between myself, my wife, and my children, I (we) will be spending money next year on something (or a bunch of things, more likely) that I am not planning for right now. Hopefully, it won’t be anything drastic or a real emergency, but for most people, I would guess, unexpected expenses have a way of creeping up, often at inopportune times. Murphy’s Law, I guess.

Over the last few days, I have been thinking of the money I spent in 2008, especially expenses I didn’t really plan for. While I have an emergency fund, the way I look at it is, that if I can save money for expenses that are likely to happen or I know about ahead of time, I will be better off in 2009 financially than if I don’t try to plan ahead.

Now of course, you can’t plan for everything; but I think a little foresight will help with keeping my budget and personal finances on the right track. Here are a couple of ways I am planning on preparing for these types of expenses in the coming year:

Add dedicated savings for unexpected spending categories

School/Recreation Activities for Kids- (not talking about tuition for school, summer camp, or daycare-, but miscellaneous fees, registrations, fund raisers, field trips, etc. Even if it is only $10 to $20 a month, it adds up.

Vehicle Maintenance/New Car Fund- Do you drive a car more than a couple of years old? Chances are, you will have to have your car serviced sometime in the coming year, not to mention routine car maintenance for cars of any age, such as oil changes, or new tires. If your car is older, have you started saving for a replacement yet?

Christmas and birthday gifts- Even if you have a dedicated Christmas savings account, do you save up for birthday gifts for your kids, their friends, or relatives? What about the cost of birthday parties for your children? I would like to save money for birthday gifts this year on a regular basis.

Vacations/Travel-Did you take any spur of the moment trips in 2008 that you didn’t plan or save money for? Do you know if you will be doing any traveling in 2009? While my wife and I don’t have anything planned just yet, it is likely we will take 1 or 2 trips during the year, and I want to have that money saved ahead of time.

Look over subscription based services, and other recurring expenses

Did you upgrade or need to add any service, subscription-based, or other recurring expenses in 2008? Do you think that might happen again in 2009? Some things you might want to look over include:

• Phone
• Cable
• Gym Membership
• Taxes
• Health Insurance
• Car Insurance
• Life Insurance
• Transportation costs-gasoline, etc.
• School or daycare expenses

And of course, there are many more. Can you cut back on any of them? Do you need to increase any of your coverages, such as life insurance?

While it is hard to predict what may happen to me in 2009, by looking back at 2008 I can see the types of “unexpected expenses” I might have in 2009, and I can look over my personal financial situation to see if there are any areas I may need to upgrade, like life insurance, for example.

Did you have any unexpected expenses in 2008 that makes you want to save money for something similar in 2009? Do you have any planned expenses in 2009 that you know about already?

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Just like the current credit crisis, which is causing a lack of cash flow from banks and lending institutions to other banks as well as the general public, we can experience our own cash flow problems when we spend too much money and don’t pay attention to our finances closely enough. Living paycheck to paycheck is an example of this, as well as times when your bank account is almost empty, or even worse, is empty, right before payday. Unfortunately for us regular people (I’m not going to use the term Joe sixpack here- and definitely not Joe the plumber!), when we get ourselves into a financial bind or have cash flow problems, frequently there is no one there who is going to bail us out of our own personal economic crisis. So how do you reverse the trend and start getting cash flowing if you need it quickly? How do you bail yourself out of a financial meltdown?

Raise Cash

Sell some stuff- Sell your things on Craigslist or Ebay, or hold a garage sale. This could cover a whole variety of items, such as furniture, cars, books, dvds, cds, etc.

Cash in your loose change- The last time I brought change to a bank, I had over $150 in change.
While this obviously may not solve all of your problems, it could help you get out of a jam.

Cash in savings bonds- Do you have savings bonds sitting around, or other non-retirement investments? If you are really in a bind, cash them in to help yourself out.

Borrow from a relative- Even though it can hurt your pride, borrowing from a relative can be a way to get yourself out of a jam.

Learn from your mistakes

Reduce Spending- In order to get your cash flow on the positive side, you have to cut back on expenditures. Consider trimming where you can. For a list of ways to cut back on expenses, check out these articles:

35 Ways to Kick Start Your Debt Snowball

30 Ways To Save on Your Grocery Shopping and Food Bill

30 Ways To Stretch and Maximize Your Dollar

Budget- While budget can be a “loaded” word, a budget is a great tool for keeping your spending in line. Create a budget, and stick to it.

Pay down debt- After you increase your cash flow, take that extra money and pay down debt.

Save, Save, Save- Don’t forget to put something away. Build your emergency fund, and plan for future purchases or expenditures in advance.Don’t forget to contribute to your 401k or other retirement plan!

Increase income and/or cash flow

Get a part-time job- With the holidays coming up (although it will probably be a weak year for retailers given the state of the economy) it will soon be the best time of the year to get a part-time job in the evenings or on the weekends. Companies like Fed Ex and UPS also hire during the holiday season to handle the increase in shipping volume.

Start a side business, work overtime (if available), or moonlight- Do you have a talent you can turn into cash, a hobby or something else you like to do? Can you work extra hours at your regular job? Can you find someone else to work for on the side? Increasing your income is the surest way to raise extra cash when you need it.

Looking to get a raise at work? Try some of these tips:

Two of the Most Important Work Habits for Increasing Your Income

11 Ways To Market Yourself at Work to Increase Your Salary

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Even though the recent 700+ billion dollar bailout raised the FDIC limits from $100,000 to $250,000 (although this is also temporary, through December 2009) per eligible account, the rash of bank failures and the potential for even more in the near future still has many people wondering if they are covered should something happen to their bank. So how do you find out if your covered, and if your accounts are protected?

Here is some of the basic information from the FDIC website:

FDIC Insurance Basics
The FDIC (Federal Deposit Insurance Corporation) insures deposits in most banks and savings associations located in the United States. The FDIC protects depositors against the loss of their deposits if an FDIC-insured bank or savings association fails. FDIC insurance is backed by the full faith and credit of the United States government.

Is my bank insured?

For simplicity, the term “insured bank” is used to mean any bank or savings association that has FDIC insurance. To check whether a bank or savings association is insured by the FDIC, call toll-free at:

1-877-275-3342

use “Bank Find” at:

www.fdic.gov/deposit

or look for the official FDIC sign where deposits are received.

What does FDIC deposit insurance cover?
FDIC insurance covers all types of deposits received at an insured bank, including deposits in checking, NOW, and savings accounts, money market deposit accounts, and time deposits such as certificates of deposit (CDs).

FDIC deposit insurance covers the balance of each depositor’s account, dollar-for-dollar, up to the insurance limit, including principal and any accrued interest through the date of the insured bank’s closing.

The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if these investments were bought from an insured bank.

The FDIC does not insure U.S. Treasury bills, bonds, or notes. These are backed by the full faith and credit of the United States government.

Also, if you are married, both you and your wife can have separate accounts which are fully insured for $250,000 each, as well as a joint account which is insured up to $500,000. So your total could be up to $1,000,000 combined.

Revocable trusts are eligible for FDIC insurance coverage, and can sometimes be much higher than $250,000, as they can have joint owners and joint beneficiaries. This can get a little more complicated, so it is better to check your own personal situation if you fall under this category. Some irrevocable trusts are eligible as well.

As for me, I don’t have to worry about the coverage limits, and since I use several large banks that I know are covered by the FDIC, I know I am OK. But if you are not sure, it is good to check, at least for some peace of mind.

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Even though gas prices have dropped some from their all time high a few months ago, they have not dropped very significantly, and may not anytime in the future due to the recent rise in the price of oil.
Saving money on gas can still help you save money, and its a good thing to do. But in the past year or so, I have heard many gas saving tips that sound fairly suspect, such as devices that you hook to your engine and a bunch of other tips that may or may not help you save money on gas. Here are some tips that actually do work, and ways to save on gas, and a few fuel saving “myths” that won’t really help you.

Facts-

Drive More Efficiently- Tips such as don’t speed, and don’t let the car idle can keep your mpg’s as high as possible.

Check your Air Pressure- Keeping your tires properly inflated can increase your gas mileage, at least a little.

Cash Back or Gas Card- Many cash back credit cards and gas credit cards can pay you up to 3% back, some even higher for an introductory time period. Consider using one when filling up.

Look for the best deals- Find the cheapest gas prices using Gasbuddy.com or Mapquest Gas Prices.

Fiction-

Fill up in morning or certain time of day- the temperature of gas in an underground tank doesn’t vary a whole lot, so you do not get more liquid gasoline (I guess the theory is that is if it is hotter there will be more vapors) by filling up early in the morning.

Roll down the windows instead of using the A/C- Once you hit 30 to 35 mph, with most cars, you actually lose fuel efficiency with the windows down, as it creates more drag. I don’t know about you, but most of the year I cannot drive around anyway without the A/C unless I want to be sweating when I reach my destination. So unless you are cruising around at 15-20 mph, feel free to use the A/C.

Replace your air filter- While your car may not run as smooth with a dirty air filter, the computer controlled fuel injection can adjust the amount of fuel needed, so a clean air filter will not help you save any. While its good to replace a filter that is dirty, don’t expect your mpg to go up.

Use premium fuel for better mileage- When you factor in the added cost of premium, almost all cars (unless the owner’s manual specifically says to use premium) get just as good mileage with regular than with premium gas.

Hooking up a gas saving “gadget” to your car- As much as we all would love to have something that we could hook to our car’s engine, according to a test by Popular Mechanics, none of more popular ones have been proven to work.

Image by karindalziel

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These days, I’m always on the look out for additional ways to save money. One free online guide I found recently is 66 Ways to Save Money by the Consumer Literacy Consortium, which is a 12-page pdf document containing money saving tips in the following categories:

• Auto Insurance
• Banking
• Telephone Service
• Mortgages
• Buying New or Used Cars
• Appliances

and many more.

While many of them are ones you already know about, there are probably a few gems in there you may not have read or thought of before. Some are of the type that bear repeating as well, such as reviewing you phone bill and then shopping around for the lowest price for features you use, or conducting an energy audit of your home.

This is a great resource for beginners, and probably good reading for seasoned veterans at saving money as well.
66 Ways to Save Money
-PDF Document

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A very big problem of living paycheck to paycheck is that one unexpected illness, accident or other unexpected event (like an emergency evacuation!) can push you over the brink financially. Unfortunately, many people in this day and age, even people that make a pretty decent income can find themselves in this position. Even worse, should the situation cause you to not be able to work or earn a living, financial ruin may not be far off.

Spending less than you earn and having an emergency fund are great ways to deal with unexpected expenses. You can stave off the perils of living paycheck to paycheck by implementing a few simple steps.

Prepare for the unexpected

- Life’s unexpected happenings have a knack for happening at the worst possible times, i.e., Murphy’s Law. You will never be able to predict when these things will happen, so be prepared for unexpected expenses that come along to cushion yourself from financial problems due to unexpected expenses.

Find a way to save something

-Even if you start off really small, like $20 a month, that would be $240 you might not have after a year. That amount could help you out if you get in a financial jam.

Trim your expenses

-If you are living paycheck to paycheck and having trouble saving money , check out my tips on kick starting your debt snowball for ways to trim expenses. By trimming expenses, you can free up some cash for saving.

Raise extra cash and increase your income-

Boost your income, and sell things you no longer use to raise some extra cash to give you a cushion. Find a part-time job, have a garage sale, or work overtime if possible.

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My 4 year old son started Pre-K yesterday. 14 more years, and he’ll be heading off to college, if I have anything to say about it. While I am not 100% convinced that parents should pay for all of their kids college expenses (that’s an entirely different discussion) I have been looking into the different options available for saving for college expenses.

Education Savings Accounts (ESAs)

-An education savings account or Coverdell education savings account, formerly known as an education IRA, is a tax-deferred savings or investment account that can be used for qualified education expenses (tuition, books, uniforms, etc.) at elementary or secondary schools, or college. ESAs allow a person to invest up to $2000 per year per beneficiary (child) in after-tax contributions, which can grow tax-deferred, and withdrawals used for qualified expenses are tax-free.

529 Savings Plans

- A 529 plan, named after the section of the IRS code, is funded with after-tax contributions as well, and also grows tax-free if the money is used for qualified higher education (college) expenses. 529 plans are offered through individual states, but a state’s plan can be used by a resident of that state to attend any accredited college. Also, many states allow non-residents to open accounts. It is a good idea to check your state’s plan first, however, as some states (including Louisiana) provide state tax deductions by residents for contributions and/or matching contributions. Louisiana, for example, matches between 2% and 12% depending on your income, and you are allowed to deduct from your state income up to $2400 per year for individuals or $4800 for married filing jointly. Excess can be carried over as well.

Differences between a 529 and an ESA:

An ESA can be used for elementary, secondary (high school), or college tuition or qualified expenses. 529 plans can only be used for college.

ESAs are subject to income limits (phase out starts at $95k for individuals and $190k for married filing jointly). 529’s do not have income limits, or yearly contribution limits, but are subject to a max. lifetime contribution. (although many state limits are $200k +)

ESAs can be invested in a variety of investments (stocks, bonds, etc.) while 529 plans are limited to what the individual state has to offer, although most offer a variety of mutual funds.

Additional Resources:

IRS information on ESAs

529 Plan information- Collegesavings.org

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The year is half way over, so I thought it would be a good time to take a look at my Health Savings Account (HSA), which is coupled with a high-deductible insurance plan. I switched from an HMO plan to the HSA plan with a high deductible at the beginning of this year, 2008. It has been a little over 6 months, and overall I am quite satisfied, even pleased. My two small children started off January/February with several doctor’s visits each, so I was a little worried in the beginning. I also did not get the payroll deduction linked to my HSA bank account before the beginning of the year, so I actually missed my 1st two deductions, and it just went into my paycheck. Here are the numbers for the year so far:

Amount deposited into HSA from payroll deductions: Appx. $2250

Amount spent from HSA account and applied to deductible: Appx. $750

Amount currently in HSA account: Appx. $1500

If you go back and read my earlier post regarding my HSA account, I am saving about $200 a month in premiums, and I previously put about $1000 in a flexible spending account (FSA). Adding the two together allowed me to put appx. $3500 into the account without any additional expenses than last year. I increased my HSA witholdings about another $83/mo., in order to put in $4500 for the year (although I missed the 1st 2 deductions for the year, so it will end up being a little over $4000.) I don’t necessarily think the second half of the year will go as well as the 1st, but to have $1500 saved after 6 months is pretty good as far as I am concerned. Some of the benefits of a HSA account can be found in my first article as well.

A few notes from being in the plan so far:

• I have not had any problems with paperwork or claims, a problem I have heard can happen, even a few of my fellow employees who were in the plan previously mentioned having some issues.
• The price of doctor’s visits through my insurer, which are charged to me at a negotiated rate, are not as high as I would have thought. Most have averaged $75 to $100. When you subtract out the $20 copay I don’t pay anymore, this drops to $55 to $80 per visit, which is quite a bit lower than I would have guessed.
• The cost of prescriptions can vary widely, and I have paid for a couple for the kids that were over $100. But many generics cost $5, and you can do a little research and use the $4 prescription programs at Walmart or Target to find very cheap prices on some prescriptions.
• Educating yourself and talking to your doctor can help you save money. Twice, after a little research, we have requested a generic equivalent from the doctor, and it saved us $$.

So far, after 6 months, I really have no complaints about the HSA plan I am in. I do believe, in the long run, it will allow us to save money and make our own choices regarding our family’s health.

Note: All HSA plans will likely be slightly different, so you will need to research your company’s or the insurance company’s HSA plan details to see the exact plan details and how it may work for you.

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A problem I think many people have, and I know I do, is determining what to do next to take care of or improve your personal finances. If you are trying to get out of debt, increase how much you are saving, and spend less, it can be overwhelming to think about all of the things you need to do to get your financial life in order, and sometimes it can be hard to remember and keep up with all of the things you want to do, as well as all of the things that have to be done. Just like in David Allen’s Getting Things Done, I like to make a list of my next actions w/ my personal finances. I either leave it on my desk at home, or write it in the notebook I carry around, or both.

Here is a typical list from several months ago:

1. Review 401k asset allocation
2. Automate 529 account-set up electronic withdrawals
3. Set up separate online savings account for irregular expenses
4. Cancel gym membership
5. Pay all bills as soon as they come in -(recurring)
6. Make weekly payments on credit card-(recurring)
7. Plan next week’s menu-(recurring)

I like to prioritize, and place recurring items on the list at the bottom, which I may forget or put off if I don’t put them on the list. I try to do all of my recurring items on Friday (for example to plan next week’s menu so I can do any shopping over the weekend) so I get everything done before the weekend. Automating your finances can also decrease the number of things you need to remember on a weekly or monthly basis as well.

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