10 super-saving tips for 2013
Americans continue to place an increased emphasis on saving, with 1 in 5 respondents citing this as their top financial priority in Bankrate's November Financial Security Index. What better time to give yourself a fresh start than the beginning of a new year? Want to boost your savings in 2013? Here are 10 savings tips to help you reach that goal.
Tip 1: Start or boost your emergency savings account
Only 1 in 4 Americans has an adequate emergency savings cushion, according to Bankrate's July Financial Security Index, and an alarming 28 percent have no emergency savings at all, so the majority of people need to heed this tip. Since the biggest barrier to saving is not being in the habit of saving, the best way to get in the habit is to pay yourself first.
Have money directly deposited from your paycheck or even your checking account into a dedicated savings vehicle. This can be done concurrently with other goals such as paying down debt or saving for retirement, not instead of those goals. You won't miss what you don't see, and putting your savings on autopilot is a great way to reinforce the savings habit when unplanned expenses inevitably come along and chew a hole in what you've saved. You're only one paycheck away from beginning to replenish your savings balance.
Tip 2: Get an online savings account
There are three requirements when looking for a place to put your rainy-day fund. It must be liquid, meaning you can get to the money whenever you need it. It must be free of investment risk. And, you must earn a return that preserves your buying power against the erosive effect of inflation.
Even at just over 1 percent, the top-yielding savings accounts and money market deposit accounts insured by the Federal Deposit Insurance Corp. meet the first two of those requirements, and while returns still trail the rate of inflation, they are the first to eclipse inflation should the pace of price increases fall or when interest rates eventually pick up. Best of all, these accounts can be found with little or nothing in the way of a minimum deposit and are available to consumers anywhere in the 50 states. Check Bankrate.com's search engine for the highest-yielding, FDIC-insured savings accounts available nationwide.
Tip 3: Find a free checking account
Having the wrong checking account can take hundreds of hard-earned dollars out of your pocket every year. The average interest-bearing checking account charges a monthly service fee of $14.75 and requires maintaining a balance of more than $6,000 at a near-zero rate of interest to avoid fees, according to Bankrate's 2012 Checking Survey.
Instead, look for an account that charges no monthly service fees or per-transaction bank fees and doesn't require a minimum balance. Bankrate.com found that while just 39 percent of large banks and thrifts in markets around the country offer a noninterest free checking account, 72 percent of the nation's largest credit unions still do.
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Gone are the days of easy credit and flashy lifestyles that few could actually afford. Americans continue to make saving and financial security top priorities.
But that's easier said than done.
Only a quarter of Americans have adequate emergency savings. And an alarming 28 percent have no emergency savings at all.
The biggest barrier to saving is not being in the habit of saving. Adopt the habit by paying yourself first. Have money directly deposited from your paycheck into dedicated savings. When you put your savings on autopilot, you won�t miss what you don�t see.
Make sure your rainy day fund is liquid and free of investment risk. Look for an account that doesn't charge a monthly service fee or per-transaction bank fees.
Don't put off saving because you're in debt. With hard work, dedication and discipline, saving and paying down debt can be done at the same time.
Even if your bank has eliminated free checking accounts, that doesn't mean you're stuck paying the fee. The majority of banks and credit unions will waive the fee for customers with multiple account relationships, or even something as simple as signing up for direct deposit. Check out Bankrate's tips on avoiding fees, and use the search engine to find a free checking account that meets your needs.
Tip 4: Track your monthly spending
Just 60 percent of Americans track their spending against a monthly budget, according to Bankrate's July Financial Security Index. Whether you call it a budget or a spending plan, getting a handle on your spending accomplishes two things: It helps you determine where you can cut back and helps maximize your savings efforts.
Begin by tracking your spending for a two-month period. Then take this information and build a realistic monthly budget. Each month, track all of your expenses, everything from the $1 tip to the grocery store bag boy to the monthly mortgage payment. At month's end, tally up your spending against the budget and see where you did well and where you didn't. If you spent less than planned, move the excess into your online savings account or use it to pay down debt.
Tip 5: Pay down high-interest credit card debt
For many households, the best return on your money is to pay down credit card debt. Whether carrying balances at 12 percent or 22 percent, credit card debt is typically the costliest debt households have. Plowing excess cash into repayment of credit card debt is a double-digit, risk-free return because it reduces the outstanding balance and the resulting interest charges.
This is a sound move now while credit card rates remain low. Consumers with strong credit profiles can find interest rates in the single digits as well as balance-transfer offers with a zero percent rate lasting 12 months or more. To shop for lower-rate card offers, visit the Credit Card page at Bankrate.com.
When prioritizing your debt repayment, start with the highest rate card first and focus on paying off the balances in descending order. Use Bankrate.com's debt pay-down calculator to develop a custom month-by-month plan for repaying your debt.
Tip 6: Begin or increase contributions to a workplace retirement program
The burden of supporting ourselves in retirement is increasingly on our shoulders. The first introduction to retirement savings often comes through a workplace retirement plan, such as a 401(k). Contributions not only reduce your taxable income now, but your investment goes to work immediately and grows without the headwind of taxes until you begin withdrawals in retirement.
The regular contributions made with each paycheck represent the best example of dollar-cost averaging, or buying fewer shares when values are high but more shares when prices fall. Any employer contribution represents free money, so be sure to contribute at least enough to maximize any employer match.
If your employer offers a Roth 401(k), your contributions are made with after-tax dollars, but withdrawals in retirement will not be dinged by taxes at all, allowing you to keep your entire nest egg. For more information, see the retirement channel at Bankrate.com.
Tip 7: Make an IRA contribution
If you or your spouse have earned income, then you are eligible to contribute to an individual retirement account, or IRA. For 2013, those younger than 50 can contribute a maximum of $5,500, assuming your earned income is at least that much, and those ages 50 and older can contribute up to $6,500, thanks to the permissible catch-up contributions.
You can open an IRA with a bank, credit union, brokerage firm or mutual fund company, and invest the contributions how you choose. An IRA can be a great way to supplement the asset allocation of your workplace retirement plan where you may be limited to an available menu of investments. With an IRA, you can choose investments that aren't available in your workplace retirement plan, such as commodities, individual stocks or certificates of deposit, giving you access to investment options that result in a more diversified portfolio.
A traditional IRA offers tax-deferred savings, while a Roth IRA offers tax-free savings for retirement. While directly contributing to a Roth IRA is limited based on household income, converting a traditional IRA to a Roth IRA is not.
Tip 8: Sign up for a flexible spending account
Almost everyone incurs costs for medicine, prescriptions and medical copayments. Perhaps you also have dependent care expenses while you're working or pay commuting costs to get to work.
If your employer offers a flexible spending account as part of the benefits, consider signing up. A flexible spending account, or FSA, allows you to pay for medical care, dependent care or transportation costs with pretax dollars set aside with every paycheck. By paying with pretax dollars instead of after-tax dollars, you're essentially getting a discount on all these expenses you regularly incur. How big a discount? It depends on your marginal tax bracket, but those in the 15 percent bracket are saving 15 percent by paying with pretax money instead of money that has already been taxed. Contact your employee benefits department to get specific information.
Tip 9: Consider a rewards credit card
Do you always pay your credit card balance in full? If so, you're the ideal candidate for a rewards credit card. With a rewards credit card, you are compensated in the form of cash back, airline miles or one of many other methods for everyday purchases you make.
Identify what type of reward is most appealing to you, and compare card offers based on what percentage of your purchases are paid out in rewards. A 1 percent reward ratio is the most common, but many cards exist that have higher payouts for certain categories of spending or above a certain spending threshold.
Bankrate.com's 2012 survey of cash-back credit cards found 1 in 7 cash-back credit cards has a payout of greater than 1 percent on all spending and 24 percent offered higher payouts in certain categories of spending, so it is important to shop around. Finding the card that best fits your spending pattern can put hundreds of dollars per year in your pocket for expenses you'd incur anyway. The keys to success are always paying the balance in full and resisting the urge to overspend just for the sake of the reward. Check out Bankrate's search engine to find the best credit card for you.
Tip 10: Refinance your mortgage
How is this considered a savings tip? With wages at a standstill for many households, mortgage refinancing can create some much-needed breathing room in the household budget. Mortgage rates have continued to set record lows. With expanded eligibility for the Home Affordable Refinancing Program, many deeply upside-down borrowers whose homes are less in value than what they owe are eligible to refinance their mortgages at more attractive interest rates. This cuts monthly payments by hundreds of dollars. Check out the free mortgage rate search engine at Bankrate.com.