Saving money seems like a simple thing in principle, but finding those extra dollars to stow away at the end of the month isn't always easy. With different options available for building your nest egg, it's also tough to know whether your money's really in the right spot. Despite the challenges, smart people still manage to meet their financial goals. Saving effectively isn't rocket science, but vigilance and self-discipline are important.
Get Rid of Debt
Monthly interest payments eat a chunk out of your budget -- and out of your savings. Knock out high-interest credit card debt first. High credit card interest makes it better to spend extra cash on getting rid of debt than investing. You'd be hard-pressed to find a savings vehicle guaranteeing you the same rate of return as the interest your financial institution is charging you. Of course, you still need to work saving into your budget. You should be putting aside at least 5 percent of your net income, although 10 percent is a safer bet. If you have high balances on your cards, though, saving less than 10 percent for a short period of time makes sense.
Review and Diversify
Don't just let your money sit in the same account for years and assume it's working hard. Review all of your investments quarterly, and do your research to see if there are better options out there. Even if a savings account is all you have, there can be huge interest rate differences between financial institutions. Deciding whether your money is in the right place isn't only about interest rates. Your risk tolerance and what you plan to do with your savings are also important considerations. If you're saving for a short-term goal, like a vacation, or you need your capital to be guaranteed safe, higher-interest investments like stocks, commodities and many mutual funds are out of the question. However, if you're willing to take a risk with some of your money to reap higher rewards, that cash can go into higher-interest vehicles. To minimize risk, don't put all of your money in one place. Diversify.
Watch Your Pennies
You'll find you have more to save if you actually monitor what you're spending. Watch your credit and debit card statements for extra fees, and do what you can to avoid paying them in the future. If you have any club memberships or subscriptions you don't use, cut back and cancel them. Watch your expenses from dining out. While $10 for lunch everyday may not seem like a big deal, those meals add up, costing you much more than buying groceries and taking brown bag lunches.
If you see saving as an optional luxury at the end of the month, it's time to change your attitude. When you get a paycheck, pay yourself first, treating your savings like another monthly bill. If you really can't afford to commit to 10 or even 5 percent of your pay, ask yourself what size of bill you could afford if you had to pay one more. Even if it's only $20, paying yourself this small amount gets the savings habit started, so you won't find it so hard to bump up that number once you can afford more.
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