Lots of people want to save money and they are cutting back, taking on extra work, and sticking to budgets to meet their goals.
But once you start building your nest egg, do you know the best way to take care of it?
There are many savings and retirement vehicles that will help your money grow and might even give you tax breaks. But they definitely aren’t all the same and shouldn’t all be used for the same goals. Here are a few options and the best uses for them.
An old-fashioned savings account gives you easy access to your money but won’t do much to help it grow. With minimum interest rates on most accounts, whatever money you put it will likely stay almost level year to year. These accounts are good for money you might need right away.
Money Market Accounts
These accounts pay a little higher interest return than a savings account and still allow you flexibility in case you need to access your money with a little advance notice. These are slightly different from Money Market Funds which are a type of mutual fund and not administered by local banks, but can still often be combined with conveniences like check-writing privileges.
If you’re looking to build up your money to help pay for future education costs, a down payment on a home, or a dream vacation upon your retirement in 10 years, then start looking at ways to invest that will help your money grow. Before you look into any kind of market fund, consider the risk you are willing to take. More conservative funds generally yield a lower return but with less risk (but certainly not no risk) of huge fluctuations. More aggressive funds are more likely to return larger yields, but with more risk, because large fluctuations in prices and value are more likely (but not always certain – that’s the risk).
Certificates of Deposit (CD)
A CD generally gives a larger interest return than a savings account, but you should consider your money as inaccessible because you will pay penalties and fees if you take money out before the CD term is over. Put funds you won’t need for at least 6 to 12 months in a CD, but pay close attention to the term length so you know how long your money will be largely untouchable without paying a fee.
Lots of people like to invest in stocks because of the potential for a big return. It’s best to invest in a mix of stocks because of the fluctuations in the market. Anyone who has seen the recent highs and lows on Wall Street can relate to how much of a rollercoaster stock investments can feel like. If you look at stock investments as a long road, and not a short roller coaster of ups and downs, you’ll be more in tune for the investment return they can yield. Put money in stocks that you want to grow over the long term.
A 401(k), 403(b), Roth IRA, or traditional IRA are all generally great investment ideas because they will help your money grow, but you’ll also save money on taxes as the money you put into them is either pretax or tax deferred, meaning you don’t have to pay taxes on the funds until they are taken out or you pay taxes now and not when you withdraw the money (which by the time you withdraw will be a larger amount).
What about gold bars, life insurance, and second homes? As with everything else, these need to be weighed carefully. Generally, most financial experts don’t consider life insurance as a good savings vehicle. Gold bars might seem like a good way to put some money aside, but it’s like putting all your eggs in one basket and hoping for the best. Gold prices fluctuate as much as anything else. The same goes for real estate – you might flip a house and hit the jackpot or you might find you’ve bought a money pit.
Flexible Spending Accounts
If your employer offers a Flexible Spending Account option, it might be worth your while to look into it. An FSA is not a savings account at all – rather it is an account that you can put money into pre-tax and then use it during the year for health care related costs. You have to be careful as you won’t get the money back at the end of the year if you put too much in. But if you have similar annual health care costs and think you can estimate an accurate amount, an FSA can save you money on taxes.
Budgeting, it seems, can be a four-letter word. As soon as the word B-word is mentioned, people start to think of all the things they can’t have, all the ways their spending will be changed, and all the ways they will have to do without.
Who wants to do that?
But if you think of budgeting as a positive, not a negative, you might find it easier to save money. Do you want to think of the lost lattes or would you rather think of how quickly those forgettable coffees could turn into funds for a very memorable vacation?
See the difference?
Here are some quick budgeting hacks so saving money doesn’t seem so hard.
1. Make It a Game
Have you heard of the people who save all their $5 bills? Or what about the people who never spend their change but instead throw it in a jar at the end of the day? Those people have figured out very effective ways to save a chunk of money quickly without feeling deprived of anything. Make it into a game – see how long it takes to reach a mark on the coin jar, for instance – and your focus will soon be on saving more, not what you aren’t buying.
2. Make It Worthwhile
Just as the coffees you buy aren’t a lasting pleasure, decide that your hard-earned money isn’t worth wasting on things that aren’t worthwhile. Would you rather spend $30 for pizzas or would you rather skip the take-out a few times so you can have a nice meal in a restaurant? You work hard enough for your money – you should make it bring you big rewards.
3. Make It a Goal
If you envy that designer bag at the mall, look for different ways you can budget and save for it. Can you plan your errands so you waste less gas this month? What about forgoing Netflix for a few months and getting movies from the library? Can you suggest getting together with friends for coffee instead of dinner? None of these suggestions mean you are losing anything – you still get to watch movies, see friends, and get what you need. But rethinking a few old habits can help you save significant bucks.
4. Make It Public
If family, friends, and close colleagues know you’re trying to trim costs, they might be inspired to join you. It’s easier to cut corners when the people you typically spend extra money with are trying to do the same. You don’t have to disclose details, but let them know you are working toward a goal and trying spend less. Even if they don’t jump on board, they’re likely to understand and might even have some great tips to share.
Are there other ways you can cut costs without feeling deprived?
Today marks the 2nd day of the New Year. Maybe one of your goals for 2014 is to save more money. What is your plan to reach that goal? Today, on the 2nd day of the year, have you already implemented money saving changes?
Saving more money is a good resolution for anyone to have. Many people want to save more money, but it can sometimes prove to be difficult. Here are a few tips that can help you save more money in the New Year:
1. Use more cash for everyday purchases. This tip works three-fold for those wanting to save more money. First, using cash forces a person to really think before purchasing an item unlike using “invisible money” (i.e. credit and debit cards) for purchases. Those who hold larger bills e.g. $20, $50, and $100 are less likely to break that bill for a small amount like a Starbuck’s latte for example. Secondly, if you do break a bill, you can take the change from that bill and put it in a piggy bank. And third, using cash for certain purchases can be used as a budgetary measure. Give yourself a certain amount of cash to use for purchases. For example you set a budget of $300 dollars per month for groceries, pay for your groceries in cash and once you reach $300 you’re done for the month.
2. Keep a piggy bank. I alluded to this in # 1. Don’t scoff at piggy banks and think they’re just child’s play. Piggy banks can amount to big money depending on how much and how often you contribute to it. Remember to check your coins for rarity before cashing in. Some coins have significant value worth way more than their face value.
3. Cut costs on household utilities. Begin shopping around for better deals on your phone, cable, and internet. If you can completely cut your cable and use alternatives like HULU or Netflix, your cost savings will be even more.
4. Purchase “like new” items instead of brand new items. During my school days I never purchased a brand new book if I could help it. I always purchased “like new” or rented them if I didn’t think I would ever use them again. This tip alone saved me hundreds of dollars last year. This tip is not just isolated to school books. If you’re eyeing something in a traditional retail store, most times you can find a better deal on sites like Amazon or Ebay.
5. Eat at home more often. Making dining out a special treat instead of a regular everyday habit can add more money to your pockets. Try to limit you dining out to no more than twice per week.
These are just a few tips that can help you save more money in 2014. What are your best money saving tips?
In addition to working as a RN, Nachole Johnson is a freelance copywriter and an author with her first book, You’re a Nurse and Want to Start Your Own Business? The Complete Guide, available on Amazon. Visit her ReNursing blog at http://renursing.wordpress.com.
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