Whether you’re committed to FIRE, want to come up with a home down payment, or are eager to stuff your emergency savings account with more money, there are plenty of steps you can take to save more money.
Start now. If you are thinking of saving for a long-term goal, the best time to get started was yesterday. The easiest way to save more is to have compounding work as a powerful tailwind. For instance: if you start saving $500 a month at age 30 you will have around $205,000 at age 50, assuming a conservative 5 percent annualized rate of return. At that point, even if you stop investing and just leave the money to compound another 20 years you will have nearly $550,000. If, however, you wait until 50 to save, you would have to save more than $1,300 a month for the next 20 years to land at 70 with that much.
Make it automatic. Having good intentions won’t cut it. If you don’t have an automated system for saving you run the risk of letting yourself slide at the end of the month when the bills are bigger than you expected, so you skip saving that month. It is easy and free to set up a weekly/monthly/quarterly direct transfer from a checking account into a savings account.
While you’re at it, if your bank’s online system allows it, give your account a unique name tied to your savings goal. HomeDownPayment, ICanQuitMyOfficeJob, WeCanTakeThatNiceVacation.
Research has shown giving an aspirational name to an account is a subtle way to stay committed to savings.
Save at an online bank. It’s now possible to earn around two percent on a safe savings account. But you sure won’t get that at an old-school brick and mortar bank. They are still paying close to zero. The higher savings rates are available at online savings banks and credit unions. Granted, two percent is not going to make you financially independent overnight, but it’s sure better than earning nothing on your money. And whenever the economy shifts and interest rates rise, it’s the online banks who will likely increase the yield they pay on savings accounts.
Stretch your timeline. Think of all the services you use on a schedule. Haircut. Housekeeper. Gardener. Run the numbers on what you can save by building in an extra week or two between appointments.
Drive a cheaper car. The average monthly payment for a car is more than $500 and the average loan term is nearly six years. Driving a less expensive car that you can pay off in three or four years—and then drive payment-free for many years—gives you a whole lot of free cash to pile into savings.
Downsize. It’s not just for the empty nesters. Something to ponder: the median square footage of a U.S. home has morphed from under 1,600 sq feet in 1980 to more than 2,400 today. Yet family size isn’t any bigger. Bigger homes cost more to buy and maintain. And if you’re in serious savings mode, a move a bit farther from the action can come with much lower rent or purchase price.
Disclaimer: the content presented in this article are for informational purposes only, and is not, and must not be considered tax, investment, legal, accounting or financial planning advice, nor a recommendation as to a specific course of action. Investors should consult all available information, including fund prospectuses, and consult with appropriate tax, investment, accounting, legal, and accounting professionals, as appropriate, before making any investment or utilizing any financial planning strategy.