How to Build Savings

We all want to save more money. But wanting and doing are two entirely different things. This is why you need to employ some practical, real-world strategies that will allow you to stretch your dollar farther and stash the savings away. Not all steps may be applicable to every household's financial situation, but with some time and a little effort, many of these tips can transform the way you look at finances and the money in your pocket.

Difficulty: Moderate

Instructions

Things You'll Need:

• Financial statements from the past three months
• Piggy bank

1. Calculate your gross monthly income, which is the sum of all money you have coming in every month. This includes paychecks, dividend checks and any payments you may receive from tenants, government programs, people you lent money to or people who are making monthly payments on an item purchased from you. Calculate all your monthly expenses, including fixed expenses like car and mortgage payments, and fluctuating expenses, such as credit card bills, restaurant costs and entertainment-related expenses. Add up all your monthly expenses, dividing them into fixed and fluctuating expenses, for the past three months. This will help you determine how much you spend, on average, on things like eating out, movies, rent and transportation.

2. Go through this list thoroughly to determine where you can cut costs. Once you think you've reduced your costs to a reasonable level, set savings goals. These can be monthly, weekly or for every paycheck. Talk to the bank branches around your area until you find the one with the highest interest rate on savings accounts. Open an account with them and bank these savings into the account according to your goal schedule.

3. Set up direct deposit (if it's offered) with your employer. Determine how much money you can comfortably live without every pay period and have that money diverted directly into your savings account. Even if it's as low as $50 a paycheck, that money will add up over time, accounting for an extra $600 in savings per year if you're paid bi-weekly. You should also set up a 401k plan if it's offered to you. Be sure to contribute the maximum possible to your 401k every year, especially if your employer matches your funds. Between 4 and 6 percent of your paycheck is an ideal contribution. If your employer doesn't offer a 401k plan, you can always set up an IRA (Individual Retirement Arrangement) account with your local bank or financial advisory firm.

4. Put some money, whether it be $500 or $10,000, into a Certificate of Deposit (CD) account. These accounts are offered at most banks. Some banks allow customers to open CDs with as little as $100, while some require an initial deposit of $500 or even $1,000. Maturation periods can also vary from one month to five years or more. Naturally, the CDs with the highest interest rates will be the ones with the longest maturation periods and the highest initial deposits. However, this doesn't mean you can't accrue additional savings by opening a CD of any size that you feel comfortable with.

5. Give yourself a weekly allowance that includes dining, entertainment and incidental expenses. Get cash out of the ATM at the beginning of each week and then put away the debit and credit cards for the remainder of the week. Pay for everything with dollar bills and stash the change in a piggy bank. Have the rest of your family do the same, putting them on allowances that are reasonable for their age and situations. Add up all the money the family accrues in the piggy bank every month or so, and put it in a savings account with a reasonable interest rate.

6. Decide that you will set aside a percentage of any windfall you receive--whether that be a Christmas bonus, gambling winnings, graduation money, small inheritances or others--for your savings account. If the amount is in the hundreds, you may want to decide that you'll put at least 35 percent toward savings. If the amount is higher than that, you definitely want to bank as much as you can. Depending on your personal circumstances and outstanding debts, you may want to aim to put 85 percent or more in the bank.

7. Sign up for credit cards and club memberships that offer cash back as an incentive to join or utilize the card. You can either save these refunds, or you can use them on future purchases, thereby saving the money you would have otherwise had to spend. Check with the company offering the promotion to ensure that you qualify for the cash back program. Some programs require you to have excellent credit or a record of high spending with the company. You also want to check whether or not there is a fee, high interest rate or minimum spending amount associated with the cash back program.

Tips & Warnings

• Try to eliminate one meal out per week. If your family eats out during the day, start packing lunches for everyone. Substitute nights at the movies for nights at home with rented movies. You can also substitute Netflix or another movie rental service for cable television. It's far less expensive and allows you to choose which movies you want to see. Offer up your skills or services instead of buying presents for every occasion. Tell your family to do the same. For example, your husband may be able to help his brother assemble a complicated swing set, you might be able to create customized greeting cards for your mother, your son could help his uncle clean out his garage and your daughter could provide three free nights of babysitting. Implement this rule within your own family as well. Tell every member to make the others heart-felt gifts instead of buying expensive material items. Shop at dollar stores for expensive grocery store items like sauces, rice, beans, spices, kitchen utensils, decorations and drug store items. Shop at stores like TJ Maxx, Marshall's and Ross for designer clothing. These stores can be significantly cheaper than department stores or boutiques, and they maintain the same high-quality merchandise.
• While cutting costs can be an activity that the whole family can be involved in, you don't want to overburden children with the task of saving money. Long-term savings goals should be undertaken by the adults only, while you can still teach children about the value of a dollar and the importance of saving by giving them small allowances or showing them how a piggy bank works.

References

• Mapping Your Future

Resources

• 66 WAYS TO SAVE MONEY