One of the pillars of a sound financial plan is to have a savings account for emergencies. I’m not talking about the standard three to six months of expenses that most financial planners say you should have. While that would be great to have, let’s face it who has that kind of money set aside.
What I am talking about is having enough money set aside so that when you have car problems you don’t have to panic. How would your life be different if you had let’s say $2,000 in a savings account to take care of any emergency that comes up.
“The difference between an emergency and an inconvenience is a savings account”
Saving any amount of money is a relatively easy thing to accomplish when you look at the math aspect of saving. I have often found most people save when it becomes a priority. This month I want to share five ways to make saving a portion of your income easy
Change your Form W-4
If you are one of those individuals that routinely get an extremely large tax refund each year then you are missing an opportunity to establish some savings. By getting a large refund, you are over paying your federal taxes during the year only to get the money back without the benefit of interest. For example, if you normally get $5,000 back each year you are overpaying your taxes by $416 each month. If you have consistently received a large refund you should consider adjusting your W-4 at work to have less taxes taken out of your pay. Please be careful because you don’t want to end up owing money either.
Before you make the change, you should go to the IRS website and use their “withholding calculator.” This calculator can help you determine whether you can avoid having too much or too little Federal income tax withheld from your pay. The link is http://www.irs.gov/individuals/article/0,,id=96196,00.html
Reevaluate every financial relationship you currently have
Over time, we as humans tend to get comfortable with the relationships that we create especially if we are happy with the way the relationship is going. The same thing happens with our financial relationships, over time businesses have to adjust their pricing to attract new customers. That means the previous customers miss the best price. When was the last you checked to see if your cell phone plan is any cheaper, what about your cable bill, I saw on a commercial that DirecTV was having a bundle special so called and got my bill reduced by $7 per month. When was the last time you used your gym membership and how much is it costing you each month?
Reevaluate your current financial habits
Over time, we develop habits as part of our daily routine, sometimes those habits help and at other times, they can hurt us financially in the end. Day to day and week to week we might not give much thought to how much our habits are costing us each year. One day I remember fussing with my wife about our spending as a family after reviewing our spending from the previous month and she brought to my attention that I was the one having a latte each morning. I did the math and figured that I was spending over $1,300 per year on my daily coffee habit. ($5 per day x five days per week = $1,300 per year). What are your daily, weekly, monthly habits costing you?
Raise your insurance deductable
When asked, most people that I talk to have a $250 or $500 deductible on their auto insurance, or even a 1% deductible on your homeowners insurance. When I ask them why they don’t raise their deductible to a higher amount they have a variety of responses and none of which make much sense. I will say this; in most cases when you raise your deductible, your monthly premiums are usually lower. I recently had a conversation with my insurance agent and we discovered that by having a $1,000 deductible on our auto insurance my wife and I are saving and additional $342 per year.
Keep your distance from your high rolling friends
If you are like my wife and I you probably have friends from various social economic backgrounds. Let’s face it we all have those friends that live an over the top life style when compared to yours. I am talking about those friends that tend to live a lavish lifestyle, they have a flat screen TV in every room, buy new cars or worse lease them every couple years, eat out at fancy restaurants and basically just live beyond their means. I realize that these are your friends and they are nice people and they don’t mean any harm but hanging with these kind of folks to often can lead to you wanting to over spend and have unnecessary desires and discontentment.
In closing let me say that this article is longer than I had intended and I don’t want to make you feel like you can’t have fun and enjoy life. Being too much of a tightwad makes life and the people around you miserable. These tips are designed to give you a place to start when it comes to establishing a savings account. The key is to make saving money a sub-conscious habit. Remember a few dollars can add up to significant savings over time.
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