Save? Who Has Money To Save?

If you are like most people, you probably find it really hard to save money.  There's always a fabulous new pair of shoes, or a new electronic gadget that we absolutely positively cannot live without. Sometimes we mindlessly spend money on a quick trip to the convenience store.  We've all walked into store intent on buying just a few items, and before we know it, we walk out with arms full of stuff we don't even remember putting in the cart.  We’re guilty of downloading from ITunes or Amazon with reckless abandon.  We guzzle $5 Venti Mochas from Starbucks every day.  We spend hundreds of dollars buying things on sale, whether we need them at the moment or not, merely because it was on sale.  We live in a society of “now” and before we know it, our bank balance is a big fat goose egg.   
 
Most of us need a reason to save. It's a little easier to save if you have a clear purpose for the money. That and I don't know a lot people who instinctively squirrel away their money, unless they survived the Great Depression.  With the median household income of most Americans families being about $50,000, most of us can’t afford to save much, and may only be able to save for one thing at a time.   There are three basic things you should be saving for. 

First and foremost, you need to save for an emergency fund.  Life happens, and whether it’s a natural disaster, a sudden illness, a layoff, an automobile accident, or a major repair, you will need to find a way to bridge the gap until you can either return to work or settle up with an insurance company.  How much to save is up to you, but ideally, it’s recommended that you save 3 to 6 month’s income.  In the real world, it’s going to depend on your personal situation.   Even $1000 set aside in the event of an emergency is better than nothing at all. 

Second, unless you don’t expect to live past the age of 67, or you actually plan to work until you die, you probably need to start setting money aside for retirement.  The earlier you start, the better off you will be.  If you start by saving $50 a month every month at age 25 and invest in either indexed funds, or an indexed universal life insurance policy with cash value, investments that usually have higher rates of return (around 8%), after 40 years, you will have approximately  $168,000.  If you invested $100 a month over 40 years, you would have $335, 737.00 when you retire.  If you wait until age 40 to start saving, you would have to save $340 a month – over $4000 a year to achieve $322,000.00 at 8% interest. 

The third reason to save is for short term goals, an engagement ring, a down payment on a house, a new car, a big screen TV, a new laptop or tablet, new furniture, or a new appliance.  When you pay cash, it saves a lot of money by avoiding those nasty interest charges, and it belongs to you.  Sometimes you can wrangle a better deal on something if you tell them you are paying cash.

With the reasons to save out of the way, figuring out how to save is next.  More importantly, making sure you don't spend it once you have saved it. There is an adage that's been around for a while that says pay yourself first.  The experts say you should be saving 10% to 15% of your income.  While most people might not be able to save that much at first, once you build a little nest egg, it becomes important to protect it.  It’s okay to start small, even if it's $10 or $20 a paycheck.  Put your money into an online account like INGDirect or Ally. These online banks require 2 or 3 days to transfer money so you don't have immediate access it makes it easier to save.  You might even consider having it directly deposited into your account out of your paycheck, so you never even see the money. Another idea is to deposit any raises in your pay into a separate account.  If you are able to live off what you currently make, putting a raise in the bank allows you to put away money without ever seeing it.  Another idea is to use cash to pay for everything that doesn’t require payment by debit or check. The interesting thing about paying with cash is that when you have the cash in your hand, you know there is a limit, and it makes you think about impulse purchases, since when it’s gone, you have to wait until you get paid again.  There is a woman in Houston that started using cash for all her expenses that she could.   When she got a $5 bill as change, she set it aside in an envelope and deposited them into savings at the end of the week. She managed to save $1200 in just one year.  Another friend of mine saves all the one dollar bills marked H and J, her initials.  She estimates that she saves about $500 a year in $1 bills.  If nothing else, you can save your change.  It adds up!  Another option you might consider if you don’t think you are disciplined enough to save each month, is setting aside your tax refund if you get one. 

So Frugal Friends, what is you reason to save? and how do you save your money? I'd love to hear from you! Happy Saving!

A Little Money Goes A Long Way

Most of us have financed something at some point in our adult lives; a car, a home, credit cards, appliances, or furniture.  We make monthly payments until the item is paid.  Part of the payment includes a nasty little thing called interest, which is the cost of buying something over time.  The better your credit score is, the better the interest rate will be, but if your credit isn’t great, you end up paying a lot more.

Even if your interest rate is high, there is something you can do to lower the amount of interest that you pay.  In the beginning of the loan, interest is charged on the entire principal of the loan, so a large portion of your initial payments will mostly be interest.  Whether you are trying to lower your car payment or your mortgage, or pay off credit cards, the key to lowering what you pay toward interest is how much extra you can apply to the principal of the loan over time.  If you add $20 to your payment each month or if you make just one additional payment a year, at the end of the contract, you will have saved on the amount of interest you pay, and will have cut a few payments off the length of your loan.  That money you paid ahead is essentially money you are no longer paying interest on.   The best way to see how much you are paying is to consult an amortization chart, which can be found free online.  One stipulation, please make sure your loan doesn’t have a prepayment penalty clause before you attempt to prepay your loan

Saving Opportunity?

Saving for College Or Paying Off Student Loans

A college education is expensive! The cost of college tuition increases between 5% and 8% every year, which means it could cost double the current amount of tuition in just 10 years.  If you have already graduated, you know the pain of paying back student loans.  Most of us also shop on a regular basis, so why not take advantage of a tax free rebate program that allows you to save for college for yourself or a child, or pay off your student loans.  UPromise has been around for a number of years and has gradually increased the number of products and companies that you can purchase from in order to receive rebates, although they have moved more toward online shopping, but they do have restaurants that provide rebates, and if you purchase gas at Exxon, you get a small rebate per gallon. 

It takes about 20 minutes to set up your account and link your debit and credit cards to the account, along with any shopper’s cards for participating companies like Kroger and CVS.  You can also access several hundred online sites of companies that participate in the rebate program through the UPromise website.  You can view the list of the participating companies here: http://shop.upromise.com/mall/view-all-companies

Here’s how it works from the UPromise website:

When you make a purchase with an Upromise partner, the earnings are linked to your Upromise account.

· If you're shopping online, you must click through to participating partners from the Upromise website to get the credit for your transactions.

· If you're going out to eat, you must pay with any credit or debit card registered in the Upromise Dining program.

· For participating groceries and drug store items, you must swipe your store card registered with Upromise.

· When purchasing through other partner retailers and services, you must pay with a registered credit or debit card. Be sure to check with partners to ensure your transaction is eligible for Upromise earnings.

After the purchase is verified, the money is deposited into your Upromise account. Then, once you've accumulated $25, you have choices to either invest your earnings for growth in an eligible 529 account or use them to systematically pay down your student loan(s), you can even request a check directly from Upromise to cover school expenses or invest on your own.

What’s more, you can have family and friends sign up, and donate their rebates to a specific individual;  yourself,  if you are a student or paying off student loans, or for a savings account for a child(ren).  As a casual user, you can save a couple hundred dollars a year, and if you are truly dedicated, you can save about $1,000 a year.   

So what do you think Frugal Friends?  Do you think it’s worth it to shop specific stores to save money for college or toward student loans?