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Saving money has many unique goals but common challenges. Building an emergency fund or investing for retirement requires financial discipline and disposable income. Thankfully, there are easy ways to increase pay or change how money is received in your paycheck. There are also cash management tools to facilitate savings. Here are some steps that avoid common debt traps when building your savings:
Tax Refunds-Understand Your Money Psychology
Refund checks from the IRS are emotional highs that can lead to shopping sprees and other impulsive buying.
If you typically receive a tax refund and are struggling to save money, consider using a withholding calculator to increase W-4 allowances. By doing so, you can increase take home pay without owing money at year end. Of course, please see a tax professional as needed.
How have you spent tax refunds in previous years? The answers to these types of questions tell us a lot about our money psychology.
Unlike the adrenaline of a delayed lump sum payment, more money in each check allows you to invest regularly, pay off debt faster or set aside cash for emergencies. Having more money throughout the year also enables you to use compounding for better savings and debt reduction results.
Everyday consumers and money managers such as Elliott Broidy each benefit from using the time value of money to their advantage.
Better access to your money helps budgeting and also helps to prevent credit card usage.
Tools such as mobile banking alerts send text messages and emails if balances dip below certain levels. This allows you to quickly adjust short term spending when liquidity is running low.
Establish realistic balance alerts for your mobile banking. Do not expect to forego food, gas and other staples until your next paycheck.
Free online banking features typically include spending charts that show breakdowns of your debit card purchases. These analytics provide insight into disproportionate expenses.
Downsize Recurring Costs
Rather than giving up your car, TV or phone; there are sensible ways to economize costs and boost cash flow.
Adjusting car insurance limits to match the age of your vehicle provides instant savings. With car loan rates at record lows, auto refinancing can instantly lower your monthly payment.
Picking a more practical cable package eliminates scores of unwatched channels. Text and data plans often make unlimited talk for cell phones unnecessary.
Isolating your automatic payments could spring ideas for monthly savings that prevent the need for credit cards.
Avoid Credit for Necessities
A reliable benchmark is to buy everyday expenses such as groceries and fuel with cash. It is counterproductive to finance these costs for the sake of saving money each pay period.
Consider buying store brands and shopping bulk food stores for trimming grocery costs. Most cars do not need premium gasoline and operate well on midgrade fuel. A savings plan will be more effective when you economize to avoid credit for daily living.
Surprisingly, debt and savings are not mutually exclusive. Understanding how and when you receive money gives perspective into making informed financial decisions.
While savings needs vary, common guidelines such as not needing credit to finance daily life apply to most everyone.