Last week I talked about the reasons I like automatic investing and how it can help facilitate saving. If you are still thinking your budget can’t do away with $25 every paycheck then let’s talk about a few places where you might be able to find this extra money:
1) As an accountant, I think the most obvious one is by changing your federal and state tax exemptions to increase your take-home pay every paycheck. Did you know that before tax season was even over this year the IRS estimated that the average tax refund was over $2500? I know a lot of people love tax refunds because they feel it is “bonus money” or an “unexpected windfall.” In truth, a tax refund is money you have inadvertently lent to the U.S government at a lending rate of 0%. Meanwhile you might have been paying up to 29.99% in interest on your credit cards. It’s a lot of money left on the table. The IRS even makes it “easy” (OK, so maybe there are very little things that are easy with the IRS) for you to estimate what your personal exemptions should be on your W-4. The IRS has a Withholding Calculator to help you make sure you are withholding just enough. I usually go by my tax professor’s advice to aim at keeping your refund at around $500. I understand owing money is never fun, but neither is having large refunds. I also understand that things change throughout the year: size of bonuses, pay raises, job changes, family additions. This is why I recommend that once you have all of your tax information ready to begin calculating next year’s tax return, use that information to re-adjust your W-4. And if you do end up getting a large tax return, please don’t see it as “extra bonus/play money.” If you are walking around without an emergency fund, use it to begin one. Or use it to fund your children’s 529 plan or your own retirement via an IRA.
2) Another place to find extra money is in your annual pay raise. Some of us receive an adjustment of living pay raise at the very least. This usually hovers around the country’s inflation rate, give or take. If you get a 3% rate increase, could you not spare a third of that to send to your savings account?
3) Cutting back on entertainment costs. Maybe instead of going to the movies, you could rent one every other time. Or instead of indulging on Chinese take out every weekend, you could try making some of your own. It really is the little things that add up.
4) If you are working hard on paying debt, once you have paid off some of your cards, consider splitting the snowball between debt and savings.
Saving money is not only about being disciplined about it, but also about being creative. Sometimes, we close our minds, or eyes, to the little things that could make the difference on our way to financial peace.