Friday, February 26, 2021
Save as a Family
The best way to teach great money habits to our children is to model great money habits. While most consumers know the importance of making sound financial decisions, many admit that money management wasn’t taught to them at a young age.
Here are some suggestions to get started teaching children about money, spending habits and saving. Find one that you like or see if they spark another idea that works well for your family. The important thing is to pick one that you know you’ll stick with and get started.
Family Inventory: As a family, periodically review the subscription services you use and decide together on one (or two or three?) that you all agree isn’t really being used. Are you still paying for the gym even though you've been working out at home? Maybe it’s the movie service or cable/internet upgrade that you realize you no longer need. This can help you save the money that has been leaking from your budget.
Save: Start a savings account toward a family occasion using the money you just put back in your pocket using the tip above. Maybe it can be your “fun money account” for summer vacation or the account you use to splurge during the holidays? If you have credit card debt, earmark this found money toward that and explain to your kids why you are doing it. The lesson is one from which they will benefit for a lifetime.
Shopping: Point out the choices you make when you shop. Explain to your child why you are buying the store brand, show them the price by weight rather than sticker price or how much more a prepared meal costs versus cooking from scratch. During the weekend, plan your weekly meals together and then shop for them. It teaches budgeting skills and helps you avoid being caught off guard by an empty fridge and deciding to order out.
Using strategies appropriate for their age, show your children the basics of “how you budget” and save. Talk through the hiccups and growing pains you’ve experienced that have informed how and why you save for emergencies, the danger of misused credit or how you wish you started saving for retirement at an earlier age. If your children have an allowance or have started to work, help them budget that money to properly allocate spending, saving and charity. Imagine your pride someday when you see them passing along those lessons to children of their own. For tools to help with budgeting, visit: www.capecodfive.com/resources/home-budget-tool.
Save Automatically | Monday, February 22 | America Saves Week
Automating your savings is the easiest and most effective way to save. Whether you are saving for an emergency fund, education expenses, retirement or all things in between, automatically adding to your savings account makes reaching your goals easier and more attainable. Forming the habit to contribute every month is more important than the amount you set aside. Set your savings rate to an affordable amount and, over time, you can increase the amount when you are able.
Paycheck Deductions: Contributing to retirement plans such 401(k)s and 403(b)s is not only a simple way to “set and forget” your savings, it also tends to come with great tax benefits and as well as a matching contribution from an employer. Be sure to contribute at least enough to receive the match – that's free money!
Automatic Billpay: By setting your bills on an automatic payment, you can save extra money each month that can be used to pay down debt and limit interest payments. You will also avoid late fees and missed payments, which will help boost your credit and keep your rates lower.
Automatic Transfers: Making the decision to add money to an emergency fund or a 529 college saving account can be challenging as you navigate other financial obligations. Automating a monthly transfer to one of these accounts and treating it as one of your monthly bills is a great way to take emotion out of the process. This can also help you save toward a purchase or holiday, rather than relying on debt.
Automatic Escalations: By setting up your contribution percentage to increase a little every year, you can boost your savings with little effort. This can be a great way to ease into larger saving over time.
A great place to start with any of these options is to turn past bills into savings. Once a monthly bill is paid off or is no longer in your budget, earmark that money toward an automatic monthly savings transfer before you have a chance to spend it. For example: once you make that final payment on a monthly $250 car payment, set up a monthly automatic transfer of $250 into your savings account for the following months or use the funds each month to pay down debt principal. You’ve already proven to yourself that you can afford it!
Saving money is usually more about mindset than math. Click here to learn more about using Cape Cod 5‘s online transfer tool to automate your savings and commit to paying yourself first, which can make it easier to achieve your financial goals. To help calculate your savings goals, visit: www.capecodfive.com/i-want-grow-my-savings.
Save for the Unexpected | Tuesday, February 23 | America Saves Week
Save for the Unexpected
Saving for the unexpected is an important consideration when setting money aside. Today, we will offer tips and solutions to #ThinkLikeASaver. There are several way to automatically set money aside for the unbudgeted expense, many of which come with tax benefits.
Savings Account: Having an emergency fund in place is a critical first step to anyone’s long-term financial health. Start with an amount you know you can afford and set up an automatic transfer into a separate account. Work to build up your emergency savings to cover 3-6 months of living expenses.
Health/Flexible Savings Accounts: Contributing to HSAs and FSAs is a great way to prepare yourself for both expected and irregular medical costs. The money can be automatically set aside in your paycheck and spent tax-free on any qualified medical expense. Most importantly, this can help you when it comes to co-payments for doctor visits or prescriptions.
Roth IRA: Because you can contribute to a Roth IRA with income that has already been taxed, you can withdraw contributed sums (but not any of the earnings) at any time without taxes or penalties. In that way, a Roth IRA can double as an emergency savings account if you are in a pinch. Given the importance of retirement saving, it is strongly encouraged that you use your Roth in this way only as a last resort. Be sure to consult with a tax advisor or accountant.
Insurance: Health, auto, home, disability and life insurance, while not technically savings vehicles, are important pieces to one’s emergency saving considerations. Having these safety nets in place helps limit your financial exposure if bad luck comes your way.
Most emergency fund expenditures may be unexpected in any one month, but over the years things are bound to happen that can’t truly be called “unexpected”. Is it safe to say we can expect a blizzard or hurricane might disrupt the local economy for a few weeks? That a doctor’s visit and prescription came with a pricey co-pay? Or to find out one’s car needs more than an oil change when visiting the mechanic? These are the little things that can really set a budget back, so plan for them. Even a few hundred dollars set aside can keep one from adding to the credit card. For more savings resources, visit: www.capecodfive.com/resources/impact-saving-more.
Save to Retire | Wednesday, February 24 | America Saves Week
Save to Retire
Preparing for retirement can easily be pushed into the “someday” category, as we focus on the more immediate present day needs and expenses. In fact, very few consumers have a plan for retirement savings that is adequate to maintain their desired standard of living. Today our focus is to encourage the importance of saving today for tomorrow. There are several ways to save for retirement. Below are some of the most common.
Traditional and Roth IRAs
Traditional IRA: In a traditional IRA, contributions are made pre-tax, reducing one’s income taxes for the year they are made, but eligible retirement withdrawals are taxed.
Roth IRA: In a Roth IRA, contributions are made with post-tax income so eligible retirement withdrawals are made tax-free. There are income limits associated with this type of account.
Employer-Based Retirement Accounts
401(k): Employees can make contributions into their retirement accounts by automatically withholding a set amount from every paycheck. Employers often match a certain percentage of your contribution, free money that we encourage you to take. 401(k)s can be set up as either traditional or Roth, just like IRAs.
SEP IRA: Employer-sponsored plan. Employers, but not employees, make contributions. It operates like a traditional IRA with the ability to receive employers contribution and higher limits.
Employer-Based or Set up with an Investment Firm
Health Savings Accounts (HSAs): HSAs are like a tax-free emergency fund and retirement account rolled in to one. Not only can you use them to pay for real-time qualified medical expenses, you can also build it to use for longer-term qualified medical expenses, including those that come in retirement. You must have a high-deductible health insurance plan to qualify.
Most advisors would recommend working toward saving at least 15% (including any match) for retirement. Like exercising and eating well, saving is mostly about building healthy habits that are easy to stick with over time. Treat your retirement saving like any other monthly payment. Set aside an amount in your budget that you know you can afford and “automate those savings” by setting up an automatic account transfer or withholding a set amount every pay period.
There are rules and regulations and other advantages/disadvantages to consider that apply to each of these plans. We encourage you to speak with an accountant or tax advisor to determine which works best for your individual situation.
Save by Reducing Debt | Thursday, February 25 | America Saves Week
Save by Reducing Debt
Did you know, paying down debt is a form of saving? When you actively reduce your debt, you save on interest, and when you “automate your bill pay", you save on late fees and improve your credit score – which will save money in the long-term. Here are three simple tricks to help you reduce debt:
Snowball Method: List out your debts and send extra money every month to whichever has the smallest balance. Once you pay off that debt, use the money that previously went to its payments and add it to the payment on your next smallest debt balance. Do it again and again until all of that money has added up to be used to pay down your largest debt. The theory behind this method is that it is psychologically rewarding to check off those small victories early on and use that momentum to go after the bigger debts… just like starting a small snowball and rolling it into a huge one.
Avalanche Method: List out your debts and rank them from highest interest rate to lowest. Send extra money every month to the one with the highest rate. Once you pay off that debt, use the money that previously went to that debt with the highest rate and add it to your payments on the debt with the next highest interest rate. Do it again and again until all of that money has been added up to be used to pay down your lowest interest debt. The theory behind this method is that you will save more money getting rid of the highest interest payments first and use that momentum to crush smaller interest debts… just like starting an avalanche.
Wait a Month: The instant gratification that comes from clicking “purchase” is often the most enjoyable moment of the shopping experience. If you see something you really like, set it aside and wait a month. We will often realize it was more of a “want” than a “need” and decide to not to move forward with the purchase once our emotions are in check. If you decide that you still want it, now you’ve had time to add it to your monthly budget instead of adding to credit card debt!