We’ve all heard that American households don’t save enough. At around 4.3% of income, many families are not amassing a nest egg large enough to weather a family emergency, invest in retirement, or deploy savings strategically: say, to make large purchases with cash and avoid costly payment plans. The results can be devastating. Luckily, all hope is not lost. There is low hanging fruit available for any family that wants to boost its savings rate.
Keep Your Service Providers on their Toes
If you dutifully pay your phone, cable and utility bills year after year, your service providers love you. They’ve likely ratcheted their prices upward, hoping you’ll just keep paying. Call to let them know that you’re a valuable customer and that you’re exploring other providers. It can lead to savings of $10-20 per month.
Or better yet for cable, cut the cord entirely, using services like Hulu plus, Netflix and Amazon Prime to replace 90% of your cable content at a fraction of the price. The same goes for cell phone service, which for some families is the largest bill behind their mortgage. Once invincible, these wireless carriers are finally seeing competition in upstarts like Ting and Republic Wireless that provide low cost cell service (20-50$ per month!) without contracts or convoluted service plans. The average person pays $70 per month for their phone plan. With Ting, that amount will get you a plan for two without a contract.
Make Your Taxes Work for You
Do you cringe when you read about taxes? It’s understandable. But the tax code, properly harnessed, can provide a huge boost to savings through deductions, credits and tax shelters.
Firstly, maximize your legal tax shelters to the largest extent you can. This means pumping money into 401(k)’s, IRA’s and Health Spending Accounts. These accounts play an interesting trick: they grab your money before the government can see it, and therefore the money isn’t taxed in the year of contribution.
Another way to put money straight into your pocket is to engage in tax loss harvesting. This scary sounding term is actually quite simple: during bad stock market years, pick a stock or fund that is doing poorly and sell it for a loss. Then take that money and quickly repurchase similar (but, for legal reasons, not identical) investments. Your investments won’t have changed much, but to the IRS you have just lost money and deserve a tax deduction of up to $3,000. At a 25% tax bracket, that’s $750 per year in your pocket.
These tricks should lower increase your tax refund. But be careful. Studies show that people are more likely to spend lump sums, thinking of them as windfalls to be enjoyed. Instead, talk to your employer about increasing your withholdings. Doing so will spread some of that refund across your paychecks in small, easily savable amounts.
Remember the Big Picture
As you use these trick to reclaim your financial turf, be sure to ratchet up your savings in parallel so that you’ll never miss that new cash. Money sitting around without purpose is likely to be frittered away. Your best bet is to make the transfers automatic and just forget about them.
And above all, take a moment to write out your goals. List a few 1-year, 5-year and10-year goals (and put them on the fridge if you have a strong stomach). Keep them in mind and if your resolve wavers, think of the goal: the shiny car, the smiling child, the comfortable retirement. And then get back to saving!
Photo – Phillip Brewer