Saving money is always a challenge. Find Out How to do it
Saving money is always a challenge. The first step to setting up a savings program is to find out how you are currently spending your money. To start, I would encourage you to use Quicken ormint.com which will help you get a better handle on where your money is going. Once you know what you are spending your money on, you are in a better position to redirect some of that money towards savings.
A great exercise I use is to have couples look at each item as essential or discretionary. Once you decide which items are discretionary, I recommend that each person separately look at the discretionary items and rank them in importance from 1 to 3. Then, I recommend that they go to a public place like Starbucks or a restaurant and look at each other's list (everything stays more civil if you meet in a public place). The ground rules are that if an item is ranked 1 in importance for one person but a 3 in importance for the other partner, it is off-limits. However, if there is an item that is a 2 or 3 for either person, you can definitely consider redirecting that money towards savings.
Another recommendation is to open multiple online savings accounts for different purposes. Looking at your last year credit card bills will give you a great idea of what short term spending items are recurring yearly. For example, consider setting up a slush fund for vacations, holiday spending, etc. An automatic monthly savings plan that you can fund regularly can help you be more disciplined in your savings activity. Paying for items or occasions in advance will help you avoid building up credit card debt and less likely to sabotage your long-term savings plans.
Another recommendation is to switch to a 15 year mortgage instead of a 30 year mortgage. I recommend this with clients who have already had a mortgage for a few years. Often by then, they have a lower amount of principal on their loan and it may not be a substantial difference to pay. This is a great move for clients to make when interest rates have come down since they first took out the mortgage.
I also advise you to round up your mortgage payment to the next round number. If you can afford to, I encourage you to pay one extra payment per year on a 30 year mortgage. It is surprising how quickly you can make a difference if you pay one extra payment per year on a 30 year mortgage. Paying an extra principal each year can reduce the time it takes to pay off the mortgage considerably.
If you would like to discuss this further, please feel free to call my office at 201-843-0044. Also, I recommend you check out our website at:
www.wattersfinancial.com for further information concerning financial planning and wealth management topics.
Timothy Watters, CFP