Are you up for a challenge? How about challenging yourself to put away a cool $5k over the next 12 months? If you follow the five steps below, you should be able save that much (at least) and do so without breaking a sweat. Let’s start the savings parade.
1. Reduce Interest Costs
There aren’t many benefits of carrying debt. But one silver lining is that it’s easy to save a lot of money by shaving off a few points on the interest rate you pay. This isn’t as hard to do as you might think.
Start by negotiating with your current creditor. If that doesn’t work, ask family and friends if they’d like to refinance your debt. With rates at all-time lows, this could very much turn out to be a win-win for you both. If you still come up empty-handed, you can always reach out to peer-to-peer lending groups.
However you do it, find a way to slash your interest costs. There is simply no reason to carry high-interest debt these days. Take the money you save by lowering your interest rate and plow it back into the debt you carry. This will end up saving you even more. That’s because as your principal debt dissolves your interest costs melt away like a snowball in Death Valley in July. That’s hot.
2. Track Your Spending
After you cut your cost of debt your next task is to start tracking what you spend your money on. Please notice I didn’t suggest that you cut your spending. I’m only asking you to track how you spend money. I don’t need to ask you to spend less and here’s why.
Once you start seeing how you spend your money you’ll automatically start spending less. It’s magic. And it works. This is especially the case if you have a goal in mind of saving that $5,000 over the next 12 months. That works out to about $415 a month or $14 a day. By tracking your spending you’ll be constantly on the lookout for ways to achieve that goal and you’ll become a money saving machine.
3. Tax Deferral
If you could save $5000 over the next 12 months but it only cost you $3500 you’d be interested wouldn’t you? Well, if you pump up your contributions to retirement plans at work you can do just that or better. Here’s how.
If your employer writes you a payroll check for $5000 you only get to keep $3500 after taxes. But if you put that $5000 into the retirement plan all of it goes to work for you – and more. And there’s another way to look at this. In the example above, you can save $1500 in taxes by putting $5000 into a retirement plan.
Worried about having less disposable income? Don’t. Chances are high that you’ll find a way to live without that extra money. And by maximizing or at least contributing as much as you can to the retirement plan you take advantage of employer matching funds (if available) and long-term tax deferral. This is a no-brainer and an option you certainly should take advantage of if possible.
The best way to make contributions to retirement plans is to put this on auto-pilot. Have a fixed amount deducted from your pay each pay period and deposited into your plan at work.
4. Life Insurance
I am a huge fan of life insurance. In fact, life insurance changed my entire life when I was young. There are no two ways about it; if other people depend on you financially, you have to own the right amount of life insurance and the right kind.
But there are many ways to get that coverage. Make sure you investigate all your options and aren’t paying too much for the wrong kind of life insurance. (Hint – if you own expensive whole or universal life, think about exchanging into inexpensive term insurance instead.
If you want to take your savings to the next level, implement the four ideas I’ve already presented and then go get a side job. It shouldn’t be that hard to rake in a few hundred dollars a month which is half of your entire goal anyway. On top of that, if you pick the right side job, it could become a significant income source over the years ahead as you build it. This one step might even grow to become the cornerstone of a rock solid retirement.
Very few of the ideas I presented above are new. But most people don’t use these tools even though it would be so easy to do so and reap huge rewards. The reason people don’t implement is because they typically don’t measure results and they don’t have accountability.
In my experience, accountability is the “secret sauce” to success in any important endeavor. If you are serious about saving $5000 over the next 12 months, pick up the phone right now. Call someone who will hold you accountable and commit to save $5,000 over the next year. Then, have weekly calls with your partner to make sure you stay on track.
Saving $5000 over the next year won’t be difficult. Use the 5 steps I mentioned above and introduce accountability to the equation. That’s the challenge I present to you. Are you going to pick up the gauntlet? When?