Some people think you can eat what you want as long as you exercise enough. But that's a myth. The old adage, "you can not resist a bad diet" is correct: overeating has an effect on your weight and health that can not be balanced by any physical activity.
The same applies to saving and spending. You can not escape from an expense issue. This is because at some point there are no areas where you can cut back.
People also tend to treat money differently depending on the source. This phenomenon is known as mental accounting. We consider "extra" income, such as tax refunds, cash gifts, or even $ 100, saved by cutting a subscription, other than what we consider earned income, and we tend to be more lenient with the former.
That's why we do not think twice about blowing up $ 100 of our tax refund for a fancy dinner – something we'd be more reluctant to get out of our paycheck.
But a dollar is a dollar, no matter how you get or save it. Every dollar has the same value and every dollar gives you the same chance.
If you want to improve your long-term financial image, it is important to use your savings wisely.
Smart Money Move # 1: Identify the highest and best use for your savings
What are your financial goals? Paying off credit card debt, saving for retirement and / or saving for a home? You want to use your savings to achieve your goals, and you want to get the best return on investment (ROI) for your money.
When you have high-yield debt (like credit card debt), your savings are almost always the best ROI, as these debts cost you more than most investments.
If saving for retirement is your priority and you like free money, your savings are best used to contribute the minimum to your 401 (k) needed to get the corresponding funds from your employer, and then until to the maximum amount they will receive each year. Never refuse free money!
Maybe buying a home is on your list of financial goals. Ideally, you save at least 20% on a down payment. If you save 20% or more, you can avoid private mortgage insurance (PMI), which means nothing to you, but protects your mortgage holder (ie, the lender). The PMI usually costs between 0.5% and 1% of the total loan amount per year. So, if you use your savings to make your down payment, multiply the total return.
Smart Money Move # 2: Automate your savings plan
If you see these savings in your checking account, it can be tempting to spend them – even if you know what they are intended for. To eliminate this temptation, you should not count on yourself to use the money for its intended purpose. Our willpower grows and sinks. Instead of relying on your ability to resist temptation, let automation completely eliminate the temptation.
If you use the money to repay your debts, the solution is simple: Sign in to your bank account and increase the amount of your monthly payments from a minimum to a minimum plus what you want to save every month. In this way, you can achieve your repayment deadline much more quickly by increasing the payment amount and automating the higher payment in the background from your bank account.
If you want to give yourself a little more motivation, a debt repayment calculator can help you figure out how much money you can save by paying off the debt faster.
When you invest, increase your monthly contribution. Your ultimate goal is to maximize your retirement savings.
If you're saving for a short-term goal like a down payment or a wedding, set up an automatic transfer from your checking account to your savings account.
Out of sight out of mind.
Smart Money Move # 3: Work to increase your gap
One of the best ways to assess your personal financial health is to gauge the gap between your income and your spending. The bigger the distance, the better. If you need money nowIf you cut costs, you will quickly put dollars in your pocket. And you will often be amazed how quick and easy it is to save money first. Most of us spend more than we believe, and can cut spending, which is relatively painless.
But eventually you optimize your expenses and there are no more savings. We all have compulsory expenses such as accommodation, transportation and food. And we all have the right to spend part of the money we work hard on for things we enjoy. Therefore, we need to look for ways to earn extra money that will help us maintain the momentum savings we achieve and achieve our financial goals.
Two quick ways to raise extra money are selling things you do not use (through sites like eBay, Craigslist, and Facebook Marketplace) and taking extra hours (especially if you can be paid for overtime). Only a few extra hours per week can really add up.
There are so many good background noise There is something for everyone today. You can teach, teach ESL, become a virtual assistant, answer surveys, and more. If you want to achieve your financial goals, you should have at least one other source of income besides your regular job.
But of course we spend most of our time in our regular jobs. So it makes sense to optimize this area. When did you last receive a salary increase? Are you being paid what you are worth? Your resume should always be operational and you should always look for the next opportunity. There are many legitimate online jobs so you do not have to limit your potential to a physical office. Remember, those who spend more than two years in a job do so 50% less over the course of their career as those who change jobs more frequently.
Saving money is a great tool in your personal finance toolbox, but it's just a tool. Know where to put these savings so they work hard for you. Use automation to eliminate temptations and make life easier. Be sure to look for ways to earn extra money and increase your income. All these things taken together and put into action will make a big contribution to achieving your financial goals.
Written by R.J. Weiss, the founder and publisher of The ways to wealth, Certified Financial Planner, husband and father of three children. He has written on personal finance for the past 10 years, reporting on Forbes, Bloomberg, MSN Money and other publications.
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