Saving money is not as difficult, as many of you think. In fact, for most of you saving money is very easy, the problem is, you are not aware of your options when it comes to various vehicles of savings. Here is a quick list of five savings vehicles.
1. Pay off your most expensive debt first
The best investment most borrowers can make is to pay off consumer debt with double-digit interest rates. For example, if you have a $3,000 credit card balance at 19.8%, and you pay the required minimum balance of 2% of the balance or $15, whichever is greater, it will take 39 years to pay off the loan. And you will pay more than $10,000 in interest charges.
You can pay off that card early by adding an extra $30 to $100 a month to principal only and avoid thousands of dollars in interest.
2. Purchase a home and pay it off before retirement
The largest asset most middle-income families have is their home equity. Once you have made your last mortgage payment, you have far lower housing expenses, since your monthly payment can be one of your highest costs.
You also have an asset that can be borrowed in an emergency or converted into cash through the sale of your home. Borrowing against your home turns it from an asset to a liability again, which I do not recommend. Even when the home is paid off, you will still have to pay taxes, utilities, and maintenance costs.
3. Fund your employee retirement program or loose
Many employees turn down free money from their employer by not signing up for a work-related retirement program such as a 401(k) plan. If you do participate, in a dollar-for-dollar match you would likely receive an annual yield of greater than 100% on your investment.
Not all employees match to that extent, and some do not match at all, but even if they don’t match, if you participate, you will have tax-free savings and retirement for the future.
4. Save monthly through an automatic transfer from checking to savings
A savings account will provide funds for emergencies, home purchases, school tuition, or even retirement. Almost all banking institutions will, on request, automatically do a monthly transfer of funds from your checking account to your savings account, in the form of a U.S. savings bond, mutual fund, certificate of deposit, or money market account.
You have a whole host of options for savings. What you don’t see, you probably won’t miss.
5. Learn and understand low-cost mutual funds
If you choose the right mutual funds you can increase your wealth substantially over the years. Some mutual funds have horribly high costs and use high-risk financial sources to fund them. Learn how to evaluate low-risk, low-cost mutual funds as a means of investing.
There are low-cost low-risk mutual funds that average 3% – 9% interest, and everything in-between, see fidelity mutual funds.
Understand how to research mutual funds with this easy-to-use eBook, Learn Investing., and understand how to choose a mutual fund through research.