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   Saving & Investing
 Home>Money & Business>Personal Finance>Saving & Investing>

Savings Strategies

There are many reasons for Americans to save, including:

  • To cope with emergencies
  • To purchase big-ticket items
  • To fund high-cost future goals such as children’s education or  retirement
  • To generate income
  • To build wealth
  • For security and peace of mind
  • For the good of the country 

Almost 70 percent of Americans live from paycheck to paycheck, courting disaster if their income is suddenly reduced or stopped. Americans save much less than people in other industrialized nations. Concern for family financial security and the nation’s economy have increased the number of Americans worried about their personal income and savings.

The savings strategies listed below, many of which are relatively painless, can help you save money for financial stability and to meet future goals:

Establish Savings Habits

  • Pay yourself first—Treat savings like a bill, just like your rent or mortgage. Put part of every paycheck, even if it is only a few dollars, into savings for emergencies or future goals. A painless way to do this is through payroll deduction. If you don’t see the money, you won’t miss it or be tempted to use it for something else.

  • Collect coins—Place all loose change in a see-through container for motivation. When the container is full; deposit it in a savings account. “Kick it up a notch” by saving $1 a day plus change.
  • Save bonus/coupon money—Save any money earned or received that was not expected such as tax refunds, gift money, overtime pay, rebates and refunds. Deposit the money you “save” when using coupons in your savings account.

  • Continue installment loan repayments—When you pay off a loan, continue to write the check each month, but make the check payable to yourself!

  • Plan a “Nothing Week”—For an entire week, do not spend more than is absolutely necessary; plan events, but save the money you would have spent and add it to your savings account.

  • Break costly habits—Do you really need to buy lunch out every day? Are you trying to stop smoking? Save the money you would normally spend on habits like these.

  • Bank a windfall—When you receive unexpected money (an inheritance, bingo winnings, retroactive pay, dividends) put at least part of it into savings.

  • Save “extra” paychecks—If you’re paid bi-weekly, you will receive three paychecks in two months each year. Employees who are paid weekly will receive an “extra” check in four months of each year. Save at least part of this money.

Reduce Household Expenses:

  • Refinance your mortgage—Consider doing this only if you plan to remain in your home long enough to recoup the costs. Trading an 8 percent, $100,000 30-year mortgage for a new loan charging only 6.5 percent saves $119 per month ($1,428 annually).

  • Brown-bag it—The soft drink you buy every day for 75 cents costs $188 per year. Buy 12 drinks on sale for $3, and you’ll save $125. Brown-bag your lunch several days a week, and you’ll save several hundred dollars each year.

  • Get discounts—Savvy consumers often obtain discounts on products and services (insurance, hotels, car rentals) by asking, “Is this the best price available?” Check for discounts available through organizations such as AAA or AARP.

  • Check your long distance and cell phone plans—Major carriers offer savings plans for consumers who request it. You may need to adjust your calling habits to get the lowest rate, but the savings can be impressive. If a plan saves $20 a month, that’s $240 a year of extra money in your pocket.

  • Get an insurance analysis—Have an insurance agent review your policies. You may be paying for unnecessary coverage or missing valuable discounts. Compare recommendations and costs from several sources. Consider consolidating all property coverage (auto, homeowners or renters, and umbrella liability with the same carrier). Many insurers provide a discount for doing this.

Financial Products and Services

  • Earn more on savings—Don’t let existing savings sit in low-yield savings accounts. You are losing money after inflation and taxes. Check out higher-yielding alternatives such as CDs, money market accounts or savings bonds.

  • Get a cheaper credit card—Check http://www.bankrate.com/ or http://www.cardweb.com/ to find sources of low-rate credit cards. Transferring a $2,000 balance from an 18 percent card to a 10 percent  card saves $160 a year in finance charges. Another way to reduce interest costs is to call your credit card issuer and request a lower interest rate.

  • Accelerate debt repayment by always paying more than the minimum payment on credit cards. For example, increasing minimum payment on a $2,000 balance at 18 percent interest from 2 percent to 3 percent can save $2,528 and reduce the payoff time by 11 years, 10 months.

  • Slash bank and investment fees—Avoid banks that charge high fees or require large minimum balances on low-yield accounts. Shop around for a better deal by comparing the characteristics and fee structure of at least three bank accounts. Also, avoid high brokerage firm commissions and above-average mutual fund expense ratios.|

  • Buy U.S. Savings Bonds—For as little as $25, you can buy a bond that will eventually double in value. Yields are tied to treasury bond rates and adjusted periodically. Check http://www.savingsbonds.gov/ to find current rates for Series EE and I bonds.

  • Participate in a 401(k) plan—If you are a corporate employee and your employer offers such a plan, you can reduce your salary (by payroll deduction) up to a certain allowable limit. Many employers even match employee contributions. Funds accumulate tax-deferred for retirement.

  • Join Christmas and Vacation clubs—While money deposited in these accounts usually doesn’t earn a high amount of interest, savings does occur in small amounts, enabling people to reach future goals.

  • Fund IRAs one week at a time—Try to set aside $57.69 each week. As you accumulate sufficient funds, place them in your IRA. At the end of the year, you will have saved $3,000. Use this same strategy for a Keogh plan if you are self-employed.|

  • Don’t settle for low interest rates. Earn more money on your dollars by seeking investments--consistent with your risk tolerance level—which pay a higher return. Avoid products with high fees or service charges. Start saving early to maximize the compounding of interest.

Automate your savings

  • Join an Employer’s Credit Union—Credit unions are convenient and an inexpensive source of funds when you need a loan. Deposits can be automatically deducted from your paycheck.

  • Take advantage of payroll deduction plans. Many people eliminate the temptation of spending their savings by never seeing the money in the first place. Many corporations offer 401(k) plans, schools and non-profits often make available 403(b) plans, and state and local governments offer Section 457 plans for employees.

  • Consider these options—Check into Mutual Fund AIPs (automatic investment programs), direct purchase stock plans, U.S. Savings Bonds Easy Saver Plan to simplify your savings habit.

  • Over withhold income tax—This is not the best savings method because federal and state governments do not pay interest, and you must wait for your refund. Nevertheless, it’s one method people use to save money. Workers must adjust their W-4 forms accordingly.

Take advantage of free money

  • Get a match—If your employer offers a 401(k) type of plan, save at least enough to earn the maximum employer match. Many employers, for example, match 50 cents on the dollar up to a specified percentage of salary. This good deal should not be passed up.

  • Earned Income Tax Credit—Low-income savers who receive an Earned Income Tax Credit should try to save at least a portion of this “free” money.

  • IDA matches—Savers who qualify for an Individual Development Account program can earn substantial savings matches for homeownership, education or entrepreneurship.

  • Unclaimed property—Do you have unclaimed property, tax refunds, insurance dividends or money left in a long-forgotten bank account. Check http://www.missingmoney.com/ or http://www.treasury.state.la.us/ to search unclaimed property clearinghouses.

Shopping Strategies

  • Shop for sales—When you purchase an item on sale, save the difference between the sale price you paid and the full price you would have paid if the item had not been on sale.

  • Be a comparison shopper—Comparing products and prices can save as much as 50 percent off a price you might have paid without making the comparison.

  • Adopt the two-week rule—If you think you really want something, wait two weeks to get it. Waiting two weeks may allow you to find the item less expensively somewhere else, or you may discover you really don’t want the item when the initial excitement wears off.

  • Shop “alternative” venders—Shop where you can get the best value for your money. Consider flea markets, garage sales, thrift shops and consignment stores.

  • Slash food expenses—Plan menus, shop with a list, buy fewer snack foods and impulse items, purchase store brands and use coupons and price breaks. Trimming a $100 weekly food bill by 10 percent saves $520 a year.

  • Become a coupon clipper—Use coupons to save money on items you normally buy. Spending 5 minutes a week to cut grocery coupons that save you $6 a week is like getting paid $72 an hour! In a year, you would save at least $300. Remember, pennies make dollars.

  • Be patient—Waiting for things to go on sale, rather than purchasing at full price, can bring substantial savings. This is especially true for clothing and seasonal items such as lawn-care equipment and supplies.

References

Christenbury, J.H. (2002). “Finding Money to Invest,” in Investing For Your Future: A Cooperative Extension System Basic Investing Home Study Course. Natural Resource, Agriculture and Engineering Service. Ithaca, New York.

O’Neill, B. (undated). Twenty Ways to Save Money. (Publication No. FS563). New Brunswick, New Jersey: Rutgers Cooperative Extension Service.

O’Neill, B. (undated). Where Am I Going to Find $2,000 to Save. (Publication No. FS882). New Brunswick, New Jersey: Rutgers Cooperative Extension Service.

Last Updated: 11/21/2012 1:24:29 PM
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