These days, with interest rates at historic lows, the good news is that loans are more affordable than when rates were higher. The bad news is that saving money to create wealth takes more thought and effort.
Because of the Rule of 72, simply putting some money in a savings account used to be an effective strategy. Back when deposit interest rates were 4%, interest alone would double your initial deposit in just 18 years. Now, with rates near 1%, that same math would work out to 72 years!
So what’s the solution for saving money now, when interest-bearing deposit account rates are so low?
Saving Techniques That Always Work
The reason to save money is to increase the amount of available money belonging to you. The ways to do this are the same as they have always been; these savings tips will work no matter the economic factors.
- Find small savings. They add up over time. Try this: save all your bills and receipts over the month and stack them into categories such as “utilities,” “groceries,” “entertainment.” Do this long enough, and the places to find savings will become more obvious to you. Most people find good savings by spending more time in their kitchen and less time dining out. Another example is the monthly TV charge: Many decide that $150 per month or more for channels they don’t watch is too crazy to justify when they can get the primary channels for free with an inexpensive over-the-air antenna.
- Comparison shop. When you compare prices at different stores and websites, you can often find similar products for less money than elsewhere. Comparison shopping works especially well for groceries and clothing, but also for things such as insurance.
- Limit spending on gifts. Friends and family are more likely to appreciate a few well-chosen and thoughtful gifts than more costly ones bought in a spending spree.
- Keep the loose change and put it in a savings account. You will be amazed at how much money collects as loose change. Get the family in the habit of putting all loose change in a jar, and when it gets full, bring it to a bank for deposit. (You may have to roll it yourself. But it’s still easy savings.)
- Pay yourself first. Set up an automatic draft from your company to direct some portion of each paycheck to a savings or investment account before you get it. Start by drafting $15 each month, or more if you can easily afford it.
- Set up an automatic draft to a savings account. This tip is related to Tip #5, but it differs in that you can create a budget item for savings and manage the amount. You can add more when you find more savings from a budgeting process such as described in Tip #1.
- Avoid credit cards and “payday loans.” Credit cards make it very easy to spend money you don’t have each month. Payday loans often have an effective rate of 500%! You will save hundreds (if not thousands) of dollars each year if you avoid using them, or at least pay off the credit card balance each month. (see Tip #8)
- Try to build an emergency fund of at least three months’ worth of expenses. This one is hard, but can be well worth it. Emergency funds are there to help with large unexpected bills such as rental deposits, car repair and the like. Their advantage comes from allowing you to avoid getting a loan or using a credit card for such necessary but one-time expenses. Keep such funds in a savings account such as the Peoples Bank e.Savings account, even if it pays little interest because you can access the funds with little notice and at little cost to maintain. And should you spend any of it, work hard to get the emergency fund balance back up as soon as you can to be ready for the next emergency.
- Save with a purpose. Having a savings goal such as a family vacation or a deposit on a new home can greatly aid in prioritizing budget items.
- Stay focused on saving your money! If you get a raise or a bonus, keep it or pay off part of a car or home loan; if you could live on less before, you can continue to live on less.
These tips will almost always work to increase wealth. All of them require some idea of a budget and a savings mindset.
Peoples Bank cares about the financial well-being of its community
Talk to any of our friendly bankers to get the help you need to save and invest in your family’s future. We have the training and the resources to help you get where you need to be or want to be, such as financial calculators, personal and business banking, and access to retirement savings and planning solutions. We even offer businesses a way to operate more efficiently to save money with a Treasury Management solution.
We also provide access to additional resources to assist with saving money. This article was based on the following resources to help develop a savings plan:
- It’s Never Too Late to Save – FTC.gov Consumer Information page
- How to Save Money: 8 Ways to Save Money on a Budget – from BankRate’s 52 weeks of saving web series
- Saving on a Tight Budget – AmericaSaves.org’s For Savers website