Saving and Investing – 10 Simple Strategies

The AICPA’s 360 Degrees of Financial Literacy program has some really good articles and tools available to volunteers who desire to spend some of their free time promoting financial literacy education.  Their 10 simple strategies for saving and investing are as follows:

1. Start Small – Anything is better than nothing.  The theory of compounding rules above all other theories when it comes to saving and investing.  The more money you have and save, the faster it will compound.  My grandpa once told me to save 10% of your income – no matter what.  Try that first, but if that is too much to start, choose a number that suits your needs.  Just remember start now and do what you can.

2. Contribute To Your Retirement Plan – Contribute at least as much as your company matches, if your company does indeed match.  I recommend starting with 10% and then adjusting as you see fit.  If your company does not offer a 401k plan, open a traditional or Roth IRA account.  I would recommend a Roth if you think that you will be in a higher tax bracket when you retire than you are in right now.

3. Save Through Payroll Deduction Plans – Automatic is king.  Save automatically through payroll deduction plans that way you don’t miss what you don’t see.  Have your company direct deposit your paycheck to your checking account and then also allocate a certain percentage to a savings account, investment account, or U.S. savings bonds.

4. Set Up An Automatic Investment Plan – Automatic is king.  There are many brokerages that will automatically deduct an amount requested by you, from your checking account and transfer directly to an investment account.  This is where a little bit at a time can add up nicely over the long-term.  Sharebuilder has a nice automatic investment program that allows you to transfer an amount weekly, monthly, etc and automatically invest in whatever you decide, even include partial share investing once per week.

5. Round Up Your Mortgage Payment – Consider paying an additional amount to your mortgage payment each month.  My wife and I pay an additional $100 per month which is applied directly to the principal.  Remember, there is usually no fee for paying your mortgage off early!

6. Bank Your Raises – Here’s a thought…when you get a raise, don’t increase your spending lifestyle!  This also includes bonus time.  What about that $5,000 bonus that you received last week?  Instead of buying a new plasma TV and entertainment center…bank it!  Send it off to Etrade and set up a Roth IRA!  You won’t regret it come retirement time.

7. Keep Paying Off A Loan -  Finish paying off a loan recently?  Why not take that monthly payment and pay yourself that same amount each month!  For instance, if you have a $300 car payment that recently was paid off, continue to pay the $300 per month, but send it to a savings or investment account instead!

8. Pay Off Your Credit Cards – This is a no brainer.  Consolidate all your credit cards immediately onto one or two low-interest rate cards and start paying as much as you possibly can to pay them off.  Substantial credit card debt can be the death of your personal financial situation.  I like this quote from the AICPA: “Keep in mind that when you tack on interest rates of up to 18% to your purchases, “sale” items are far less of a bargain.”

9. Reinvest Dividends – For all of your investment accounts, including CD’s sign up for the dividend reinvestment program.  By doing this, you can essentially reinvest dividends from stocks and mutual funds into additional shares at no cost.

10. Keep Track Of Where Your Money Goes – Understanding where the heck all that money goes from your hard earned paychecks is very important.  Even for those of you who have established budgets.  Are you comparing your budget to the actual numbers on a monthly basis?  This budget to actual comparison sounds very “business-analyst-like,” but believe me, this is one of the first key items to tackle when starting to “Run Your Life Like A Business” – my new tag line for this website.  There are many software tools out there for this, such as GnuCash, Intuit Quicken, Microsoft Money Plus, MoneyDance, Mint, Geezeo, and Wesabe…to name a few.

Just remember…keep it simple stupid.  If  you have any questions, please feel free to contact me.  As you probably know, I love to talk about personal finance.