How to Save More Money by Following These Simple Dos and Don’ts
Reading time: 4 Minutes
July 13th, 2020
Many people think the best way to save more money is to earn more money. But given the recent economic devastation caused by COVID-19, with many businesses either temporarily closed or not hiring, landing new job opportunities may be challenging for the time being.
Fortunately, that doesn't mean you have to give up on your financial goals. There are lots of little ways to cut expenses and build smart money habits that can help boost your savings today, even if the economic climate right now is stormy.
Here are a few useful spending and savings tips that can help you avoid making mistakes with your money, and start putting more of it into savings:
DO: Make a Budget
The idea of creating a personal budget may sound tough (or terrifying), but it's really as simple as tracking your income, expenses, and savings to make sure everything's adding up right.
Begin by listing all the income you're making right now, whether it's your main job, part-time work, social security benefits, child support or alimony. Then add your monthly expenses, both fixed, such as rent, car lease, student loans, and the expenses that vary from month to month, including gas, groceries, utility bills and so on. Try to estimate the average amount you spend on these variable costs—you can always update these estimates later if you need to.
Subtract all your expenses from your income. If you're just breaking even, or if that number is negative, you now have a better idea of how much expenses you may need to trim to balance your budget and reach your goals. Having a budget lets you assess your current financial situation, helps you know whether you're on-track to meet your goals, and gives you a better idea of what changes to make if you need to adjust.
DON'T: Carry High-Interest Credit Card Balances
Even before the coronavirus pandemic, the average American held four credit cards and carried roughly $6,200 in credit card debt. With many cards charging 20 percent interest rates or more, the cost of that revolving balance can add up quickly. If this situation feels familiar, one of your first priorities should be to pay down outstanding balances on any high-interest loans or credit cards with a high annual percentage rate (APR).
The amount you can save in interest payments may surprise you, and you'll also be better able to keep up with your other monthly payments, saving you potential late fee penalties and protecting your credit score.
Mathematically, the “avalanche method" is the most effective way of tackling debt: pay the minimum balance on all debts each month, then dedicate as much money as possible to paying off the debt with the highest interest rate. However, others have found success with the “snowball method"—pay the minimum monthly balance on all debts, then focus on paying off your smallest debts first to gain momentum and motivation to tackle bigger debts. Take a look at your specific financial situation to decide which strategy makes the most sense.
DO: Look for Ways to Lower Your Interest Rates
If you're living off your credit card or having trouble paying down debt right now, don't panic. Speak with your credit issuers about the possibility of lowering the interest rate on your current cards or if you qualify to switch to a different card with a lower rate.
Another option is to apply for a credit card featuring a balance transfer offer, which may allow you to shift debt onto a new card with a zero-percent introductory APR that usually lasts for 12 to 18 months. Keep in mind, you may have to apply for this card from a different credit issuer, and some might come with transfer fees of up to 5 percent. (If there is a transfer fee, make sure the fee amount is less than what you would have to pay in interest if you remained with your current card.)
If your issuer won't reduce your APR and you can't secure a balance transfer card, explore options to consolidate your debt at a lower rate of interest, using a personal loan or (if you're a homeowner) a home equity line of credit (HELOC).
DON'T: Forget to Shop Around
There's a tendency to feel “locked in" with long-term plans for your cell phone, internet and cable, as well as home, health, and car insurance. But the truth is that rates are always changing. You might be able to find better prices than what you're currently paying for utilities and amenities by shopping around; saving even just a few dollars each month could add up to hundreds of dollars saved a year.
When comparing services, annual or multi-year plans are usually less expensive than month-to-month options. (Just don't accept a lower rate at the cost of quality coverage when it comes to health insurance; in an accident, you could end up paying out much more than what you're saving.) If you do make a switch, ask for any sign-up costs or opt-out fees to be waived.
DO: Automate Your Saving
After paying your rent, your credit card bill, your groceries and every thing else that makes the cost of living in Hawaii so high, it can be tough to find cash left over to save for the future. Take the guesswork out of how much money you might be able to set aside by setting up an automatic savings plan at your bank. You can divert a set portion of incoming funds each month, usually from your paycheck, directly into a separate savings account. It's easy, it's automated and, at the end of the year, you'll have hundreds or possibly thousands of extra dollars set aside that you may have otherwise spent, were the money just sitting in your checking account.
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