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These days everyone is looking to save money. Coupon clipping is becoming a very popular hobby. Getting a deal is a great idea but it shouldn’t be the main goal. Many times people hoping to save money end up being penny wise and dollar foolish. To really get the best bang for your buck you have to be strategic in where you invest your money and time.
Here are some common mistakes of penny savers and how to become a dollar saver instead.
Mistakes to Avoid
Chasing deals and missing deadlines – With family budgets shrinking, many parents, especially moms have turned to couponing and sale chasing to stretch their family budget. This is a smart idea; however, you can take it too far. Some get so involved in coupon clubs and chasing deals they start slacking on their other financial tasks such as bill paying. They are racking up $39 late fees and finance charges while they are saving $2 on toothpaste.
Not valuing your time – Most people don’t realize how much their time is worth. If you are an hourly worker, that’s easy. For most salary earners you can take however many thousands you earn in a year and divide by two. For example $40,000 is $20 an hour and $60,000 is $30 an hour. So now when you take on a task you can figure out if it really is worth your time. Suddenly driving half an hour to save 5cents on gas doesn’t sound that smart.
Not investing the savings – This is the most crucial part of saving money – investing the savings. When you save with coupons what do you do with the savings? Do you actually save it in the bank or do you end up spending it elsewhere. To really save money you must have a plan to do something with the savings; otherwise you are just wasting your time. Money magazine recently had an article on Super Savers and featured ordinary people saving 30% or more of their income and putting the money in the bank.
Take Advantage of the Internet
Pay your bills online – You can sign up for online payments and alerts with most companies today ranging from your power company to your department store credit card. They send you reminders of when your bill is due and then you simply pay online. This avoids postage, late fees and missed payments. If someplace doesn’t offer it, for example your child’s preschool, you can simply set up an automatic draft from your own online bank. Your bank will print and mail a check every month for you. Paying your bills on time is the single most important factor on your credit report.
Stay on top of your credit report – Your credit report can help you save thousands of dollars if you maintain it well. Your credit score is becoming a more important factor in all your financial matters. It can determine how expensive your home and car loans will be as well as how good of a salary you can get. Make sure you view your credit reports at least once a year for FREE via www.AnnualCreditReport.com.
Invest online – No matter how little or large you have to save consider opening an online savings account. Online banks typically offer higher interest rates. Even better they offer more online tools to help you save and plan. You can maintain your local bank and simply transfer money electronically between your online and local bank. ING Direct is an online bank that allows you to create several connected accounts so you can set up automatic savings and transfers in your vacation fund, Christmas shopping fund or any other savings goals. And saving money in a bank should be your ultimate savings goal.
by The Queen on January 25, 2010
in Financial
We buy anti-wrinkle creams, endure Botox injections and even plastic surgery just so we can preserve our looks as we grow older. What about preserving our bank account as we grow older? More Americans are concerned about how well they age in retirement rather than how well they can afford retirement.
The main reason we avoid saving for retirement or college is because it all seems so overwhelming and confusing. But it doesn’t have to be. Here is how to get started step by step.
Investment Guide
Just Start – Many Americans put off saving because they feel they don’t have enough to save. They keep waiting for the promotion, the year end bonus or the money tree to grow in the backyard. But by waiting, they miss the main point of investing. It’s not about how much you invest, but how long you invest. Take this very poignant example:
A young 20 year old invests $2000 a year for 10 years having a total contribution of $20,000 by age 30. By retirement age, she would have $1,000,000. Yes $20,000 can become $1,000,000.
Now compare that to:
An older 30 year old who invests $2000 a year for 30 years and contributes a total of $60,000. By retirement age, they would only have $500,000. Yes, waiting 10 years cost them half a million dollars.
But it is never too late to start. Even if you are close to retirement age, it doesn’t mean you can’t benefit. Remember retirement begins at 65 but you can continue to grow your money through the decades of retirement.
Avoid Analysis Paralysis – Another reason many put off investing is they want to time the market or find the next star stock. But the key to success in investing is simple – save consistently for the long term. Research by Money magazine has shown that investors who contributed regularly in standard mutual fund investments ended up with more than investors who tried to time the market and invest in star investment choices.
Read the investment guides in Money magazine or Kiplinger’s Personal Finance. They offer a good starting point. Also most large investment firms like Fidelity, Vanguard or Charles Schwab have very easy to use investment navigation options.
Keep an Eye on Your Money – Working with a financial advisor can help you develop an investment plan. But beware how they make their money. Opt for an advisor who earns their money by billing you by the hour not by taking a commission from your investments. And no matter who you work with, you need to have access to your accounts at all times. You should be able to check up on your accounts online in your pajamas. Don’t rely only on paper statements. That is how all the Bernie Madoff victims were swindled.
Investment Options
Employer Plans – Most large companies offer 401(k), 403(b) or other retirement options. Many even offer company matching. So you can get free money from your company just for investing. It is easy to sign up and contribute. Just take the time to understand your investment options and fees. You can contribute up to $16,500 a year or $22,000 if you are 50 and older.
Individual Plans – If your employer doesn’t have retirement benefits or you would like to invest on your own, you can open an IRA – an Individual Retirement Account. The annual contribution limit is $5,000 or $6,000 if you are 50 and older. And you have until April 15, 2010 to make a contribution for 2009.
by The Queen on January 18, 2010
in Financial
Americans are getting the message. The personal savings rate for Americans in 2009 was the highest it has been in 16 years. We’ve learned we can’t depend on the banks or the government for funds; we have to depend on ourselves. Saving for retirement or a big purchase is great, but it all starts with having an emergency savings fund.
Continuing our Financial Resolutions this week, here’s why it is crucial to have an emergency savings fund and how to get started saving.
Why it is so important
Avoid Debt – Many people see credit cards as the answer to emergencies that arise. They charge unexpected expenses like car and home repair on credit cards. Then they are left worrying how to pay the bill. But if you have a rainy day fund, you don’t have to worry about it. Paying with savings keeps you from going into debt and accruing interest and fees on top of all the money you owe.
Gain peace of mind – Avoiding debt is a great practical reason to have an emergency fund. But even more important, is the psychological reason. Having a financial safety cushion gives you peace of mind and lets you sleep at night without financial worry. It also allows you the opportunity to make better decisions without feeling you are in a pressure cooker. If an unexpected home repair arises, you can fix it right instead of just patching it. Or if you lose your job, you can afford to wait for the right job instead of just taking any job.
How to get started
Start the habit – Having an emergency fund is about creating a saving habit. The first step is to setup a separate account and then start funding it. Don’t worry about how much. Literally start with just $10 a week. Even that small amount leads to $500 a year. Imagine if you tripled that or more.
Make it automated – Nearly every bank or credit union now offers online banking. You can simply set up an automatic transfer every week or every pay period from your checking account to your rainy day fund. This takes all the hassle out of saving.
Look for more savings – Once you have started the habit and made it automatic, start looking for ways to save more. What can you change in your budget to leave you with more savings? If you don’t watch all the cable channels you have, can you change your plan and save an extra $20 a month? How about earning more money? Can you sell items you no longer need? Or offer to babysit for extra cash? Don’t focus on the amount, focus on the quantity. Twenty dollars a month is no big deal, but in a year its $240.
Reach for a goal – You have set the gears in motion and now you can start working towards a goal. You can start small with $1000. Once you reach that, aim for one month’s expenses. Your next goal should be three month’s expenses, and your ultimate rainy day fund goal should be six to nine months of expenses. If you are a family with one wage earner, it is even more important to have a large emergency fund.
Once you get your emergency fund all set, you can start working on long term saving like retirement and your kid’s college education. Join us again next Monday to learn how to retire with more funds than grey hair.
by The Queen on January 11, 2010
in Financial
The New Year is here and so are New Year’s resolutions. One of the most popular resolutions for 2010 is to get in shape – financial shape that is. Wwe are kicking off a Financial Resolutions series this week. Join us every Monday in January. We will be tackling your money concerns and offering you tips on how to get ahead in 2010.
Opening the series, is the most requested topic – getting out of debt. Americans carry nearly 1 trillion – that’s right trillion dollars in credit card debt, with the average household owing nearly $9,000. These are staggering statistics. So here are some tips to help get out of debt and avoid becoming a statistic.
Face the Facts
When asked how much they owe, the majority of people with credit card debt underestimate their total debt. They pay the minimum payment of each bill and avoid looking at their total balance or total debt. That’s like driving with no road signs. You have no idea how far or fast you have to drive.
Calendars are on sale now, so buy a large monthly view calendar. Then collect all your credit card bills and input all their info on the calendar. Write when they are due, the minimum payment, total due and interest rate. Now on one easy to read piece of paper you have your entire debt picture. Take a good look at it. How scary is it? How committed are you to getting the balances to zero?
Change Your Behavior
Paying down debt is a process. It is not something you do in a day. To be successful long term, you have to change your habits and behavior. The reason you got into debt is spending. So you have to stop spending and start saving to pay off your debt. Think about it like stopping smoking.
Stop hanging out with spenders – A smoker trying to quit does not hang out with smokers. So if you are trying to stop spending, avoid friends and situations where you will be tempted to spend. That means no cocktails and dinner with the girls every Friday or no three day weekend trip just because you have MLK off. You don’t need to stick a Getting Out of Debt sticker to your forehead. Just tell people that you love spending time with them but your goal for 2010 is to stick to a budget and you have exceeded your entertainment/shopping/vacation budget for the month.
Find a new habit – Many smokers start chewing gum instead of smoking cigarettes. You should find a new habit to substitute other costly ones. Stopping at Starbucks on the way to work because you can’t make good coffee at home? Try McDonald’s, their McCafe’s are cheaper but still good. Love buying books or going to the movies, discover your local library. Honestly, I hadn’t been for nearly a decade and was amazed at the selection and easy at home access to the catalog where I can make reservations for items online. You get the idea. Don’t stop doing something, just find a cheaper or free alternative.
Start Paying it Down
Once you face your debt and start changing your behaviors to preserve more funds to pay down your debt, you are ready to choose a pay off strategy. There really is no right or wrong way to pay off debt. It is a personal choice.
If you are a more logical person, you would opt to pay off the credit card with the highest interest rate first and then work your way down.
If you are a more emotional person, and you need more reinforcement and encouragement, pay off the credit card with the least balance. You will feel that sense of accomplishment and will be energized to continue.
If you need to improve your credit score, pay off the credit card where you are at or near the credit limit. This will help your credit utilization ratio which accounts for a third of your credit score.
Consumer Reports offers a more thorough overview of payoff strategies: http://www.consumerreports.org/cro/money/credit-loan/how-to-pay-down-your-debt/overview/index.htm
Once you get out of debt, you want to avoid any new debt. And the best way to avoid it is to have an emergency fund. Join us again next Monday to learn the importance of an emergency fund and how to set one up.
