Ten
Strategies to Save Money
by
Mary Rowland
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Start Small.
Experts suggest you save 10% of your income. It's a good goal, but don't
give up just because you can't save that much. Establishing savings habits
and saving consistently is better than putting aside a big sum just once.
Start with something you know you can live with-- say $25 a week. Promise
yourself that you will save that much every Friday.
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Sign up for
the 401(k) plan at work.
Contribute up to the amount the company matches, which is the amount your
employer kicks in when you contribute. The most common match is 50 cents
on the dollar. This gives you an immediate 50% return on your money.
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Monitor your
ATM withdrawals.
Decide how much you will take out each week and make it last. Make it a
little tight. And try to decrease it over time if you can. If you have
money left at the end of the week, put it in your savings account.
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Pay off all
your credit cards and student loans.
List your credit cards beginning with the one with the highest rate. Cut
up all of them except the two with the lowest rates. Begin paying extra
every month on the card with the highest rate. When it's paid off, move
to the card with the next-highest rate. When you're finished, start adding
$50 a month to your savings account. By paying down debt, you get a return
of whatever the interest rate happens to be. So pay off $1,000 that you're
carrying at 18% and you get an 18% return. Even in today's market, that
kind of return is not easy to generate.
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Set up an automatic
investment plan.
You can arrange to have as little as $50 a month deducted from your bank
account and deposited into a mutual fund account.
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Pay a little
extra each month on your mortgage by "rounding up."
You will add equity to your home, giving you extra flexibility when you
decide to move or refinance. If you prepay $100 a month on a $150,000 loan,
you will save $72,952 in interest and save 7 1/2 years off the loan. You
don't have to commit to paying a specific amount. Just round up your payment
to the nearest hundred.
Once you've become a reliable saver, it's time to think about how to earn
a better return. One simple way to do that is to take some money from your
bank savings account and buy a certificate of deposit. Consider this: Bank
passbooks accounts are paying about 3%. If you lock up your money in a
CD for just one month, you can 4.97%. Go for three months and you can get
5.05%. Next you'll be ready to start investing.
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Pay off your
car loan.
Interest on your car is not deductible unless it's through a home-equity
loan. Even then, the rate is probably higher than on your mortgage. Pay
it off and save.
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Open an IRA.
Do this only after you've maxxed out your company's retirement plan. You'll
probably come out best with the Roth IRA, which means you contribute after-tax
dollars, but then get to withdraw it in retirement tax-free. If, however,
you think you're going to be in a lower tax bracket at retirement or you've
already contributed significantly to a regular IRA, you may want to stick
with the traditional version.
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Evaluate your
term life insurance policy.
If you've had the same term life insurance policy for some time -- say
five years or more -- you can probably cut your premiums dramatically by
changing policies. Here's why: Term is straight insurance protection. When
you buy a policy, you get a medical exam and the insurer knows you're healthy.
But each year the premium increases -- as you grow older and the time stretches
out after your health exam. If you apply anew and get a fresh exam, the
insurer sees you as a better risk. In addition, there's a premium war going
on right now in term insurance.
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Account for
your money.
People who know where their money goes spend far less and save more. Keep
a little notebook with you and record your small cash purchases.