What do you do with your refund money? If you’re anything like me, it’s gone pretty quick. So I went out to find what I should be doing to save my money in a better way. Here are the six best ideas from some of the smartest financial minds around.
Save more, sooner
“The way real wealth is built in the world is with discipline and effort. Yes, you might manage to get stock options in a hot startup company or inherit a load of money unexpectedly or enjoy some other windfall. But just saving more gives you the ultimate in investing power: Steady compounding over long periods of time.”
-Mitch Tuchman, Forbes
Don’t take too little investment risk
“Having come of age during a lost decade for stocks, some young adults are dubious of the markets. Nearly 20% of investors under 35 are unwilling to take any risk, a recent Investment Company Institute survey found.
The problem with an all-cash approach is that your portfolio won’t keep up with inflation. “Young investors have to balance market risk and inflation risk,” says Maria Bruno, senior investment analyst at Vanguard.
Instead, ease in. Putting 30% of your long-term savings in stocks is better than 0%. Eventually, that baby step may make you comfortable with a bigger stake.”
-Amanda Gengler, Money
Build an Emergency Fund
“Money is more expensive when you are desperate. An emergency fund will save you from the high costs of getting a personal loan, maxing out a credit card or financing medical fees in case of the unthinkable.
When your bank account is dry, yet you have an unavoidable expense, you have just three options: pay 5%, 10%, 20% or more to borrow from a lender, sacrifice your dignity and borrow from your parents or pay nothing and borrow from yourself via an emergency fund.
The best time to start your emergency fund is after you have already paid down your high interest debt and gotten your free money from your employer via retirement fund matching. But once you get that licked, create a separate high yield savings account specifically earmarked for emergencies only. Or better yet, create a CD ladder so you get a bigger return while maintaining liquidity.”
Control your spending
“The less you spend, the more you can save. That doesn’t mean you need to live like a pauper, but it does mean that you should get in the habit of spending less money than you bring in each month. This may mean making some changes to how your spend money, although not necessarily. There are plenty of painless ways to save money. But when you look at the advantages of spending less than you earn, you’ll see that the sacrifices are well worth your while.”
-Robert Berger, U.S. News
Establish a budget
“Once you’re bringing home the bacon, you’ll have to figure out how to slice it up. Without a budget, you risk overspending on discretionary items and undersaving for important big-ticket purchases.
“The big thing is really to differentiate between your needs, your wants and your dreams,” says Lauren Locker, a financial planner in Little Falls, N.J., who also teaches a personal finance course to undergraduate students at William Paterson University. First, lay out all your daily expenses (such as commuting costs and food bills) and recurring monthly payments (rent, utilities, debts). When you know where all your money is going, you can more easily see how to cut costs. For example, when I first made a budget, I was stunned to learn how much I was spending on take-out food. Being aware of the cost allowed me to trim it by ordering less food, less often.
Next, factor in your short- and long-term savings goals, such as an emergency fund and retirement kitty. And if you ever expect to settle down and buy a house, you should probably start saving for the down payment as soon as possible.
A budgeting site such as Mint.com can be a big help if you want to digitize your budget.”
Quit the Bank of Mom and Dad
“You love your parents, and what better way to show them than to set them free of your financial responsibilities? “In your twenties, the main goal is becoming self-sufficient,” says Baehr. “Look to get off of your parents’ payroll and onto your own.”
Obviously, financial independence starts with a job. You also ought to cut the cord by getting your own insurance, car, cell-phone plan, home, everything. Slightly less obvious, you don’t want to resort to getting help from Mom and Dad even in a pinch—hence, the need for an emergency fund.”
-Stacey Rapacon, Kiplinger
If you want to read more, click the links to the author’s main article.