MONEY TIPS FOR 2012
30 tips to increase your bank account
The Challenge: Track Your Spending
For the next month, here’s your assignment: Record where every cent goes. Save receipts, credit card slips, canceled checks, and write everything else down on a pad of paper. Or you can go all-digital with a site like mint.com that tracks every credit and debit card purchase. Whatever your preference, here’s the key: Let no donut go unrecorded. You’ll be surprised at just how much those $4 Dunkin’ runs add up. Often just seeing your spending pattern will point out ways to save.
The Challenge: Save in Your Sleep
Most of us think too much when we save. What do we mean? Big goals like your dream car, a vacation home by the lake, and your kids’ college education are huge and uncertain. If you wait until you know the exact cost and when it’ll strike, you’ll never save anything.
So start today. Instead of thinking about how much you’ll need to reach your goal, estimate the maximum amount you could possibly save each month, says Dan Ariely, Ph.D., author of Predictably Irrational and a professor of psychology and behavioral economics at Duke University. To figure out exactly how much you have left over, use the budget sheets at menshealth.com/2011budget.
Then set up automatic payments from your paycheck toward your goal. If you find you need more spending cash during the month, you can always adjust—but in the meantime, you’re stashing dough toward the day Junior gets into Yale.
Why It Works: Automatic payments don’t just make saving easier—they make spending less tempting. How? Money—spending it or even thinking about spending it—causes a dopamine rush in your brain. Then you’re relying on your willpower to resist handing over your VISA. That’s a battle you’ll lose, says Chip Heath, Ph.D., a professor of organizational behavior at Stanford University. “You can’t advise people to ‘spend less,’” he says. “You’re creating a willpower struggle that will have to be fought on a day-to-day, week-to-week basis.” So remove as many of those decisions as you can through automatic bill pay and savings withdrawals.
The Challenge: Transfer Your Savings to a Money-Making Account
Don’t stow extra cash in your checking account—you’re letting your money be lazy. “Having more than what’s required to avoid minimum-balance fees is a waste, because it’s not earning interest,” says Dan Candura, a certified financial planner at Massachusetts-based PennyTree Advisers. Stash a month’s worth of expenses in checking. Then put the rest of your emergency stash—experts now recommend a 6- to 9-month buffer—in a high-yield savings account. Compare rates at bankingmyway.com.
While You’re At It: If you’re always in the black at the end of each month, schedule a recurring automatic transfer to a mutual fund, Candura says.
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The Challenge: Bulk Up Your Emergency Fund
In this volatile economy, you should save at least 6 months’ worth of expenses in case you get laid off. To start, save much as you can once you’ve paid the bills, experts say. If you must insist on a number, start by putting 10 percent of your paycheck toward the emergency fund. Once you have 6 months’ worth of income saved, tackle your debt. (You might hear debt first, savings later, but the safety net is important to have in case layoffs hit.) “Setting aside cash is as important as avoiding interest, so be aggressive about both,” says Ray Harrison, the founder and CEO of Harrison Financial Group.
The Challenge: Balance Your Budget
Call it a “spending plan” or “financial strategy” if you can’t stand the b-word. Point is, you need to know where your money’s going if you want to save more of it. Use the five categories listed below, and within them list all the expenses you pay online from your checking account. (Put rent under housing, car payment under living expenses, etc.) Add a line for cash under living expenses.
Recommended budget allocations:
Living expenses 40%
Single with home
Living expenses 25%
Married with home
Living expenses 25%
Household with kids
Living expenses 30%
While You’re At It: Stay humble. People who lack financial confidence often make the best money decisions. In one study, when people were told that budgeting was difficult, they estimated their expenses more accurately than people who were told it was simple.
The Challenge: Lower Your Credit Card’s Interest Rate
First, transfer all of your balances to the card with the lowest interest rate. Right after you make a payment, call one of the companies you owe and tell them you want to close the account because you’ve found a better rate. (Head to bankrate.com to size up their competition.) They’ll often negotiate with you right then and there.
Another option: If your home is worth more than you paid for it, refinance your mortgage and take out the equity to pay off your credit debt. The interest rate on your mortgage will be significantly lower—and the interest is usually tax-deductible. (Remember to figure in refinance costs like points and fees.)
While You’re At It: Go on a credit and debit fast for 2 weeks; only pay with greenbacks. “Studies show that buying something with a credit card doesn’t register with your brain the way it does when you pay cash,” says Chip Health, Ph.D., a professor of organizational behavior at Stanford University. Converting to cash will make you sense the sting of forking over every penny—which is exactly what you should feel.
Continue reading this article for all the tips at MensHealth.com after the break!
— Wealth Building Daily
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