Pay Yourself First
The typical scenario is that you get your paycheck. After you recover from the shock at how little is left after taxes, you proceed to divvy it up among all your outstanding bills, intending to put whatever is left over into your savings.
But there never seems to be anything left over and your savings don’t grow.
A better plan would be to pay yourself first. Don’t let the money get into your hands. You might find that you actually begin to grow your savings much quicker this way.
If you work for an employer with a 401K plan, the first thing you should do is to fund it to the max. If you can’t afford that, at least put enough in to get the full matching contribution form your employer.
This investment is made before taxes. Your investment is larger and with the employers contribution grows quickly.
Next have a brokerage or mutual fund company debit your banking account monthly. This money should first go into an IRA – if you have five years or more to go to retirement, make it a Roth IRA.
Next have a few dollars more be debited to go into a no-load, low cost mutual fund. The younger you are, the more aggressive your choice of fund can be.
After that is done, then figure out how to pay your bills and living expenses. If money is tight, cut back on your living expenses and use the extra money to pay down your debt.
Start with the lowest balance first. Once that debt is paid, take the amount of money you were paying on that debt and add it to the payment on the next lowest balance debt. Continue doing this and you can be totally debt free within 5 to 7 years.
Another version of this method is paying the highest interest rate debt first. The principal is the same, you just see more progress with the first method, although it could be more costly based on how your debt is distributed.
(If you don’t believe me, get the premier version of Microsoft Money or Quicken and use the “Debt Reduction” module. You will be shocked at how much money you will save and how fast you can eliminate debt this way.)
The idea is to scrimp at the expense of your current lifestyle, while leaving your savings to grow and you debt to shrink.
I know many of the people reading this will scream that this is an impossible plan. But it is quite doable with a little will power and the ability to delay gratification for a while.
The problem is that if you don’t do this, your future might turn out to be very bleak.
For more financial planning articles, visit http://www.credit-yourself.com/financial-planning.html
Chris Cooper, a retired attorney, and his wife Aileen, who has an MBA in Finance, provide personal financial planning advice at Credit Yourself – http://www.credit-yourself.com
Article Source: ezinearticles.comThis article contains a list of money saving and investment tips. They are in no particular order and just appear as the author thinks of them
Credit cards can be a great money saving vehicle, as long as you pay them off on time. If you purchase an expensive item on the first of the month, then typically you will have 30-60days before you start paying interest on the purchase. This gives your hard earned cash a little bit more time to earn interest in a high interest savings account.
Credit Cards
Most credit card companies offer some type of reward system, this is typically equivalent 0.5-1% cashback. It is best to choose cards that give you the rewards in real money, rather than in tokens or points for savings on some other goods and services. Otherwise instead of pocketing a couple of hundred pounds in cash you may up spending out on that all new lean mean grilling machine as you have earnt 50% off through George Formans credit card company….
Credit Cards – Company Expenses
If you end up claiming a lot of company expenses then try to put all purchases on your credit card, and make sure you claim for the expenses as soon as possible. If your company is quick at refunding expenses you may find that you get the cash before you have to pay off the credit card. Yet more interest to be earned in that high interest savings account. Further more, if you have a credit card with a reward points scheme you will earn money on expenditure that isn’t even yours!
High Interest Savings Accounts
There are a number of accounts that have been recently advertised with headline interest rates. 7-10% interest is now becoming more common place. However these deals aren’t quite as good as they seem. You can usually only put a maximum of £”50 a month into the account, and at the end of the year it will typically be swept into a current account or equivalent. This means you have to keep on your toes and make sure you swap to another account once the initial interest rate period expires.
Now what about that maximum investment per month? Even if you invested £250 a month for a year into a 10% account you will only end up earning £135 pounds in compounded interest. If you are a tax payer this is reduced to £105, or a high taxpayer would earn a measly £81 pounds. Okay, so it is better than nothing, but it is hardly a massive pay out by the banks and building societies.
You will probably be better off in the long run by choosing a good, consistently high paying online savings account, such as that offered by Nationwide or Halifax. These pay out in the region of 4.5%-5%, but their annual investment limit is normally around £50,000 a year, rather than £3,000 a year. Also with a proven track record of high interest rates you wont have to chop and change your accounts every year. Saving you lots of time and hassle.
Cash ISA’s
Invest in cash ISA’s! Especially if you are a higher rate taxpayer, but even if you are exempt from taxation you will find that they offer a good rate of interest, and will protect your interest earnings if you end up paying tax in the next few years. Also don’t forget that you can only save £3000 a year into a cash mini-ISA, so you need to make sure you make good use of your tax free savings each and every year to be able to build up a good tax free nest egg.
Mortgages
If you are on a variable rate mortgage see if you can tie yourself into a discounted mortgage. Banks and building societies are offering some eye-popping rates at the moment, but make sure you checkthe small print. A 2% interest rate in the first year may sound great, but check that it doesn't increase to 7 or 10% interest in the 2nd to 5th year.
Some financial research has shown that statistically you are most likely to be best off with a 2 year fixed rate mortgage, and then remortgage every 2 years. This may seem like a lot of hassle but it could save you hundreds of pounds each year.
Visit http://www.whatprice.co.uk for more money saving advice.
Article Source: ezinearticles.com|
|