If your budget has been a little tighter than usual over the past few months, you’re not alone. High inflation, sluggish wage growth and the possibility of a looming recession are some of the reasons saving may become more difficult.
However, a tight budget doesn’t mean there’s no opportunity to set aside money to set up a savings account. Here are 12 tips to help you build a healthy nest.
1. Pay attention to subtle changes in different budget categories
A tight budget means every spending decision adds up, but you can start saving money by making a few small changes. For example, the money you save by preparing lunch rather than buying takeout or eating out can easily add up. The same goes for making your own coffee instead of having a cup at Starbucks.
Some other changes include:
Turn off lights when not in use.
Cut the cord and opt for a cheaper streaming service. Streaming services often have shared or family plans that you can assign to multiple people to further reduce costs.
Reluctance to impulse buy. One way to do this is to write down wishes and wait a week before buying them so you can see if you still want them.
One way to budget is to use the 50/30/20 rule, which means you spend 50% of your income on essential expenses, and the remaining half – called discretionary income – for the things you want ( 30%) and savings (20%).
2. Use a budgeting app
Budgeting apps can help you manage your budget and maximize your savings. For example, Digit automatically verifies your account and transfers funds for you to increase your savings. Also consider Chime, a banking app that makes it easy to store your spare change.
Budgeting apps often work by tracking your expenses and even predicting future expenses, saving you time estimating budget items. You can then track how much you spend in each category each month and find ways to save.
3. Take advantage of student loan forgiveness
In August, President Biden announced a new federal loan forgiveness program designed to benefit millions of federal borrowers.
Individual borrowers with an annual income of $125,000 or less (or $250,000 for married borrowers) are eligible for federal student loan forgiveness of up to $10,000. Pell Grant recipients are eligible for forgiveness of up to $20,000.
Once student loan forgiveness applications open, the Office of Federal Student Support recommends that borrowers apply by November 15, 2022. However, applications will remain open until December 31, 2023.
Additionally, the Biden-Harris administration has extended the moratorium on student loan payments for the last time until December 31, 2022. You can use this break to save money that you would otherwise spend on student loan payments.
4. Look for insurance rates
It’s wise to compare car and home insurance prices every few years. No surprise discounts or other loyalty discounts can help you save money by keeping your current business. But sometimes you can save even more by switching or combining auto and home insurance at the same company.
Also, make sure you get any discounts you are entitled to, such as B. Insuring multiple cars or being a safety driver.
5. Refinance your mortgage
For some people on a tight budget, refinancing is an opportunity to save money. If you can reduce your mortgage rate by 0.5% or more, it might be worth considering doing so now. Refinancing your mortgage can save thousands of dollars over the life of the loan.
For example, a homeowner with a 30-year mortgage with $275,000 remaining in 25 years has:
Current balance: $250,230.95
Original interest rate: 6.5%
Current monthly payments: $2,089 monthly principal and interest.
Over the course of the loan, the homeowner will pay a total of $344,370 in interest.
Now suppose this homeowner can refinance a 25-year mortgage at 5.25%.
Refinancing will reduce principal and interest payments to $1,499.50 per month, saving you $589.50 per month.
Assuming the mortgage continues for another 25 years, including 5 years of interest paid on the original loan, the total interest paid is $199,620.03 – a savings of $144,749.97.
Closing costs, which average about 3% of the refinance amount, are an important consideration when refinancing a mortgage and are not included in these calculations. These calculations are for illustrative purposes only and are intended to provide general guidance on refinancing your mortgage. See how much you can save with Bankrate’s mortgage refinancing calculator.
Even disregarding the savings over time by paying less interest, saving money on a monthly mortgage can help someone on a tight budget without compromising their home investment return time.
6. Find ways to save on rent
Renters may want to consider moving to a smaller apartment or lower cost area to save money. If you’ve changed jobs during the pandemic or don’t have to commute every day, moving to a cheaper location can significantly reduce your housing costs, often the biggest expense in a household budget. You can also try negotiating a rent or lease term to save on rent.
7. Get Bank Bonuses
Some banks offer bonuses for opening a new account and meeting some basic requirements, such as setting up direct deposit or maintaining a minimum balance. Some of the best bank bonus offers can make you around $250 or more in a few months.
Read the fine print before signing up for a bonus so you know how to get it and how long you need to keep your account open. Also, be aware of minimum balance requirements that may make opening or maintaining your account difficult, as well as account fees that may drain your bonus amount.
8. Automate your savings
It’s easy to forget to save. Therefore, automating the process is the best way to save money.
Some mobile banking apps have an automatic savings feature. But if not, you can always download a third-party savings app like Chime, which will estimate how much you can save each month and put that money into your savings account.
Have your employer put a portion of your paycheck into a high-yield savings account to keep it separate from the money you use to pay your bills. Compare interest rates to ensure competitive returns on your savings.
9. Take advantage of pre-tax savings opportunities
Set up automatic contributions to your employer-sponsored retirement plan, such as a B. 401(k), which uses pretax funds to fund your retirement and can reduce your taxable income. Additionally, some employers offer 401(k) contributions that match employees, essentially providing free money to build your retirement savings. Employer matching programs generally require employees to make a minimum contribution to qualify.
10. Take inventory of food expenses
Groceries can be one of the most expensive budget categories, but it’s easy to keep spending in check by preparing your own meals and cutting back on eating out. Learn how to save money while shopping.
11. Find cheaper travel options
There are more travelers today than at the height of the COVID-19 pandemic. When making travel plans—whether it’s visiting family or going on a much-needed vacation—make sure you budget for your trip in advance so you don’t spend a fortune.
When it comes to flights, you can save money by booking a red-eye flight or flying with a budget airline.
You can also save money by staying at a budget hotel or Airbnb, buying groceries instead of eating out every meal, and using a credit card that doesn’t charge foreign transaction fees.
12. Check your payslip
Getting your tax refund every year may feel like you’ve found money, but the truth is you’re overpaying the amount you owe in state or federal taxes. That money could be put to better use later in the year by paying down high-yield debt, building an emergency fund, or replenishing a bad debt fund.
Check with your accountant or use the IRS withholding calculator to see if changing your withholding tax makes sense for you.
What experts say about saving on a budget
Here’s what financial experts have to say about stretching your money.
Greg McBride, Chief Financial Analyst, CFA, Bankrate: “Trying to save when you have little or nothing left is a challenge, so flip it over and save first. Put your paycheck directly into a special savings account, and contribute to your employer-sponsored retirement plan through payroll deductions. While the phrase “you don’t miss what you can’t see” sounds cliché, it’s true. I once suggested Everyone who has been and experienced it has come back and praised how well it worked.”
Malik S. Lee, CFP, CEO and Founder, Felton & Peel Wealth Management: “I think you need to do two things to start saving on a tight budget. First, you need to stick to your budget and fight the urge Buy. Second, you need to take advantage of pre-tax employee benefits. Saving for vehicles like 401(k)s and HSAs before taxes through your paycheck allows you to achieve your savings goals while putting more money in your pocket than you would save after taxes.”
Malcolm Ethridge, CIC Wealth Management Certified Financial Planner, Executive Vice President and Trust Financial Advisor, said: “People who rent an apartment or house may not realize that if the landlord offers to renew, they can negotiate the next lease. This is especially true for people renting from an individual or a smaller property manager. If you plan to stay there for a while, it’s also a good idea to get a longer lease now. Landlords may be more flexible knowing they are holding you back 24 or 36 months, not 12 months.”
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