Try these tricks to build a better financial future.
As a group, we young adults are divided on the issue of savings. More than half of us can pat ourselves on the back: According to a survey from America Saves and the American Savings Education Council, coordinators of America Saves Week (February 21 to 28, 2010), 51% of adults ages 18 to 34 are saving for specific goals.
But for the rest of you, saving may seem daunting or even impossible. How many people make enough money to call any of it "extra?" But, really, saving is not as hard as you think. And starting to save soon (like right now) will give even a pittance time to grow into a big deal.
For example, if you're 23 and sock away just $100 a month in a savings account yielding 0.9% (sadly, that's the current national average for savings and money-market deposit accounts, according to Bankrate.com), you'll have $16,875 by the time you're 40, assuming a 25% federal tax rate, 6.8% state tax rate and 3% inflation rate. But if you wait until you're 30 to start, you'll have only $10,721 at 40, under the same circumstances.
Whether you're gearing up to start saving now or you're already a super saver looking for some extra tips, here are seven ideas to speed you on your way:
1. Overestimate your spending. Let's be honest: When you don't have decades of experience to help you figure out how much life costs, you're bound to make some pricey mistakes, such as forgetting you might need money for your friend's May wedding. So set high expectations for your expenses, and you'll often end up with an extra pile of cash.
In my own budget spreadsheet, one column is for "expected spending," which I always overestimate, and another column tracks actual costs. At the end of each month, the difference adds up to at least $50 that I transfer into a savings account. That's $600 of reserves each year, plus interest.
2. Make saving automatic. Let your bank handle the transfer from your checking account to savings for you. Many banks even offer little rewards for such automatic moves. For help, read Savings with a Kick. And consider how you might benefit from multiple automatic savings accounts.
An even easier route: Arrange with your employer to have a portion of your paycheck deposited directly into a savings account. If you never see the money, you'll be less tempted to spend it. (Try some other ideas to Put Your Finances on Autopilot.)
3. void impulse buys. When the shopping bug bites, try taking a breather before you buy. For example, I prefer to shop online (avoiding brick-and-mortar stores and the pressure of salespeople also helps me save money). I click like crazy and load up my virtual shopping cart, but then I hold off buying anything for at least a day. When I go back, I take a fresh look at my potential purchases and usually change my mind about most items. Or I'll forget to go back altogether and save hundreds by not buying anything at all.
4. Spend less on date night. Early in our courtship, my husband and I spent $200 or more on a few fancy dinner dates (no wonder we're scrambling for savings now). And for all that expense, I can't remember what I ordered or what we talked about. But I'll never forget the score of our first tennis match (which I'm not at liberty to share, but feel free to guess why) and talking afterward about our glory days playing for our respective schools. We had fun sharing a common interest, learned more about each other, and grew closer – all for $0.
Our best dates have always been free: having a catch, watching each other's DVDs, playing Scrabble or chess, and much more. If we'd stuck to those activities and skipped the costly dining out, I'm sure we'd be equally in love today – and a few hundred dollars richer. Need some more date ideas?
5. Entertain at home. Your popularity doesn't have to cost you. My best college memories involve getting together with friends in each other's dorms and apartments to share cheap meals (oh, the things you can do with a can of Campbell's soup) and watch awesomely bad movies (does anyone remember Pauly Shore?).
Today, dinners at home continue to mean good times for less money. My husband and I share the cost of semi-monthly "Sunday-night dinners" with a new group of friends by preparing them potluck-style and taking turns hosting and cooking the main course. Thankfully, the menus have improved since college (no offense, Campbell's).
6. Spend cash. A friend offers her system as a good money-saving strategy: Every Sunday she goes to the ATM to withdraw the entire amount she's budgeted for the week. Then she divvies up the cash into envelopes, each labeled with a different purpose, such as "eating at work." If she uses up all her lunch money at the beginning of the week, she has to brown-bag it until the following Monday. Any cash left in the envelopes at week's end goes into savings.
You'll find, as she does, that using cash will make you think harder before letting it go. Plastic is so impersonal – you can swipe away your fortune with a credit or debit card without even noticing it until you get your next statement. But when you physically hand over dollars and cents, you're more likely to feel the pain of how much you're spending. And counting up the cash you saved at the end of the week can prove very satisfying – just think how happy Scrooge McDuck looked swimming in his pool of gold coins in Duck Tales (woo-hoo).
7. Sequester small bills. Here's a savings suggestion from my editor: Remove the ones and fives from your wallet and stash them elsewhere. This strategy started as a way to generate about $100 in bite-size cash to keep on hand in case of an emergency, such as a fire or flood. But you may find this tactic so easy that you fly by the $100 mark. My editor, for example, has quickly built up about $280 and hardly even notices the small bills missing from his wallet.
This article was written by Stacy Rapacon from Kiplinger and was legally licensed.
The views of the authors of these articles do not necessarily represent the views of First Republic Bank.