Nine Ways to Stash Cash

It is tough to save money - especially after forming life style habits that leave you with empty pockets about the 20th of the month. Here are a few tips from “Saving on a Shoestring” by Dearborn Financial Publishing:

Pay Yourself First
Treat savings with the same priority given to a car or mortgage payment. Set aside part of each paycheck immediately - while you still have the money. If your employer offers direct deposit, in which your paycheck goes straight into your bank account, consider signing up for this service. Many people find it easier psychologically to make deposits than withdrawals.

Save Your “Extra” Paychecks
If you are paid biweekly, you will receive three paychecks in two months out of the year. If you are paid weekly, you will receive one “extra” check during four months of the year. The months where extra income is received vary according to each year’s calendar and the day of the week on which you are paid. Determine the months with “extra” paychecks and plan to put part or all of this money into savings.

Collect Coins
Put all loose change in a can or jar. As the container fills, deposit the money into a savings account. If you can save a dollar a day, plus all your pocket change, you will have about $50 a month set aside, or $600 a year. Saving two dollars a day plus loose change should yield over $1,000. Get in the habit of increasing your savings by “making change” on purchases.

Continue Paying Off a Loan
As soon as you have finished paying off an installment loan, continue making the same monthly payment - to yourself, in a savings account. It will not change your lifestyle a bit since you are already used to making the monthly payment.

Use the 10 Percent Solution
Find a way to save 10 percent of your yearly earnings. One way is to review your household expenses and reduce them by 10 percent. For example, the average family of four spends about $136 a week on food. Ten percent of that amount is a mere $13.60, which produces an annual savings of $707. Apply the same tactic to other expenses where monthly payments can vary.

Bank Your Windfalls
A windfall is an unexpected sum of money received on a one-time or limited basis. Whenever you receive a windfall (e.g., an inheritance, award, raffle prize, retroactive pay or a bonus), put at least part of this money into savings. After all, you were not anticipating the money. If you had not received the windfall, you would have managed without it.

Pay off Your Debt
If you are carrying a balance on your credit cards, paying off this debt is equivalent to earning the amount of interest charged by your creditors. Make debt reduction a priority. Why pay 18 percent or even 12 percent interest on credit cards while earning 5 percent or less on a bank account or money market fund?

Repaying an 18 percent debt is equivalent to earning 18 percent - guaranteed and tax-free! Consider consolidating your debt by taking out a home equity loan. Your interest would be tax-deductible, and the higher, non-deductible credit card interest would be eliminated.

Go Easy on “Easy” Money”
Easy money, such as money from an ATM or credit card advance, reduces the amount available for savings. Many automatic teller machines charge a fee, and you are left with no record, like a check, of where the money went. Even more costly are credit card advances, where effective interest rates of 30 percent or more are common. Few issuers offer grace periods on cash advances. Many also charge higher interest rates than for credit card purchases.

Adjust Your Tax Withholding
Instead of receiving a large tax refund each spring, put the money to work now. Proper withholding, using IRS form W-4, is the key. A $2,000 income tax refund, for example, is like having about $165 a month of additional income available for savings or debt reduction. Consider having your newfound cash automatically deposited into your savings account so you do not spend it. You will not have the big tax refund, but you will accumulate a substantial savings account.