Too many Americans are generally foolish by not saving their hard-earned money. Rather than saving their money, they spend heavily on depreciating assets (new cars, new boats, new RV’s, etc.) expensive contracts (phone plans, time shares, cable TV, etc.) and temporary, entertaining experiences (dinner out, movie, concerts, etc.), and unnecessary insurance (extended product warranties, etc.). Lack of saving money will gradually lead you to debt and impoverishment, which you may never escape.
If you are not able to save 10% of your money, then you cannot prosper. You must either increase your income or reduce your expenses, or some combination of the two. By saving a little money with each paycheck, you can make it grow to achieve longer-term financial goals such as a car, child’s college, home down payment, retirement income, financial security or just an expensive toy. Saving is not emotionally appealing; it is a rational decision. However, seeing a chart of how your saved and modestly invested $200 per month money will grow over the long term is motivating!
The point is that you need to set up an automatic process for saving to a retirement account, high interest online savings account, or other type of account. That way, your emotions cannot interfere with the process.
Saving for retirement should be your top priority, as I’d be willing to bet you’re going to grow too old to work one day. Experts now advise us to expect to live to be 90-100 years old, unless we practice unhealthy things like smoke, drink alcohol or take harmful drugs! A small amount saved and invested when you are young will grow exponentially over 40 years! If your employer offers a 401K retirement plan, and offers a match to your contributions, take advantage of this! Free money from your employer is like a pay raise! So, contribute to your employers’ 401K retirement plan up to the match limit. Then open your own Roth IRA (Individual Retirement Account) account (with Schwab, Vanguard or Fidelity) and contribute some money beyond your employers’ match limit to that account, since your own individual retirement account should offer more investment choices than your employer does.
Choosing a Bank
You have a few options of where to store your money. Too many people hide their money under their mattress or other odd places throughout their home. This is unwise for several reasons:
a. Thieves can steal it.
b. Fires and floods can destroy it.
c. You can forget where you stored it. When you pass away, it will likely be lost.
d. The money is not insured if it is lost, destroyed or stolen.
e. It’s losing value daily, due to inflation, (currently at about 2%, but is expected to rise soon).
Many people hold their money in large national or regional banks, thinking they are more secure than small banks. This is a false myth and a big mistake. The truth is that these large banks tend to engage in illegal and unethical practices at the customer’s expense without consequences, as they have paid our elected representatives large amounts of money to get them elected. They also treat their customers carelessly and impersonally, as they feel secure and complacent in the market. I therefore recommend using only small, local credit unions and banks; your money is equally secured and FDIC insured as the big guys, and value their customers much more.
I also recommend storing only a few hundred dollars at home, for emergencies or opportunities such as garage sales. Better places to store your money are:
a. local bank
b. local credit union
c. online bank
d. online money market account, typically associated with an investment account.
These are all insured by the US federal government (FDIC). You will generally find that you will be better served by a local bank than a large national bank. You will also be better served by a local credit union than a local bank. As a customer of a credit union you become a part owner of the business.
Unfortunately, most of these institutions offer you near-zero interest rates to hold and loan your money to others at much higher interest rates. Online banks tend to offer the highest saving rates. Back in the day when I was young, and a dollar was a dollar, set to the value of gold, and banks didn’t offer new-fangled, pseudo-financial products, banks offered 5%-6% interest rates, and I’m not ancient yet!
Autodraft Protection
If you have opted in to having overdraft protection, beware that you have given your bank permission to charge you high fees for covering your irresponsibility of not maintaining an adequate balance in your account, and automatically withdraw their fees invisibly from your account. My advice it to set up periodic auto deposit and auto-transfer into your account to ensure that you always have sufficient funds to pay your local bills. Then dump your sleazy autodraft protection!
Increasing Income
Apart from getting a pay raise or cutting costs, there are many ways to generate additional income. One great way to increase your income is by renting a spare room or garage in your home. If you install a popular memory foam mattress in your spare room, you can advertise a one-night stay to try out the mattress!
You might also rent a space in your driveway for an RV or boat, or a space in your backyard for a garden. If you have stuff that you have not used in over a year, consider selling them on Craigslist.com or Facebook. If you have some good home maintenance equipment (lawn mower, power washer, lawn edger, etc.) musical instrument, guitar amplifier, microphones, multi-track audio recorder, boat, watercraft, RV, tent, surfboard, off-road vehicle, trailer, bicycles, leaf blower, portable saws, exercise equipment in your garage or golf cart, you may be able to rent those out.
If you’re underemployed, or your employer does not contribute toward your 401k, then let the federal government contribute toward your retirement savings! If you earn less than $32k per year, or $64k per year as a married couple, you qualify to receive 10-50% of your contribution, up to $1,000/year from the federal government toward your IRA. The federal program is called “Savers Credit.” In a Roth IRA, this money can grow significantly, tax-free over time! You can open a Roth IRA with Charles Schwab with an initial deposit of just $100.
Another savings tip is that if you have a home mortgage with private mortgage insurance (PMI), once you accumulate 20% equity into the home, you are able to “appraise out” and drop that unnecessary PMI that only protects the bank and not yourself! Of course, your lender will never tell you this! To do this, you must get a a list of appraisers from your lender and pay for a home appraisal. Another strategy is to refinance your loan.
You can also get paid for taking daily walks by earning money as a dog-walker in your neighborhood!
See my Technology Deals page to see how you can reduce expenses on technology.
See my Investing page to learn how to invest your saved money.
Health Savings Account
If possible, open a health savings (HSA) account with either Fidelity or Livelyme.com and contribute money to it with each paycheck over the course of your working years. Your employer may offer an HSA account to their employees and contribute an amount to it. This money will be deducted form your paycheck before taxes, effectively reducing your taxable annual income. Your financial objective is to use this money, tax-free, during retirement to pay for either retired medical care, nursing care, or long-term care insurance. Do not let this money sit idle in a money market savings account as inflation will erode it; so choose a reliable large cap growth mutual fund or ETF to invest your (and employer) savings so it will grow significantly over 40 years until you are retired. Unfortunately, if you have a healthshare medical account, you are not eligible for an HSA. Thank your congressional representative for that!
Reduce Home Utility Bills
- Maximize the insulation in your attic. The payoff is immense!
- Install solar panels on your roof or backyard, if you live in a sunny climate. They are now reasonably priced and continue to get cheaper each year. They operate best with a battery back-up system.
- Install direct, ductless air conditioners and heat pumps in your home.
- Install LED light bulbs throughout your home. They are now quite reasonably priced and consume a fraction of the energy of incandescent bulbs. They are highly energy efficient, low cost, and come in a variety of color tones such as daylight, warm light, etc. They also come in dimmable versions.
- Weatherstrip around your windows and doors. A large amount of heat is lost from poorly fitted units. Also, consider replacing your old, wooden windows with energy-efficient windows.
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Call your utility company about getting a free home energy audit. They will inspect your home and provide many specific suggestions on how to save energy. Also, ask them if you qualify for reduced rates for low income individuals. This can result in substantial monthly savings and many free benefits.
- Install a programmable thermostat.
- Install double or triple cellular shades over your windows.
- Update you appliances to new, efficient “Energy Star” appliances.
- Lower the temperature of your water heater to about 130 degrees F.
- Place a brick inside your toilet tanks to conserve water.
- Close off any unused fireplaces and insulate the chimney stack.
- Insert a Franklin style stove in your fireplace. Regular fireplaces actually lose more heat than they generate.
- Install direct, ductless heaters to replace your conventional home heater.
- Place bookcases filled with books along the north wall of your home.