6 Ways To Ensure You Save More Money Every Single Year
Written by
Jennifer Taylor
Edited by
Rebekah Evans
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Trying to save money isn’t always easy. However, be proud of yourself if you not only accept the challenge, but also want to put aside an increasing amount each year.
Even with the best of intentions, figuring this out can be tricky, but you can do it. Here’s six ways to ensure you keep saving more money every single year.
Practice Reverse Budgeting
“Reverse budgeting starts with your goals in mind and helps make sure you ‘pay yourself first,'” said Stratton Harrison, certified financial planner (CFP), enrolled agent (EA), founder and financial advisor at Vita Wealth Management. “Determine the savings needed to reach your goals, automate those savings and then guilt-free spend the rest of your income.”
Automating your savings on the front end allows you to spend the rest of your money as you please, while moving in the right direction, he said.
Review Your Insurance Policies
“Most people do not optimize their deductibles on their homeowners and auto policies,” Harrison said. “A lot of time people have low deductibles when in reality they should max out their annual deductibles.”
He said having a higher deductible will allow you to pay lower annual premiums.
“Review this with your CFP or your insurance broker, because everyone’s situation is unique, but a majority of people would benefit from reviewing and optimizing their deductibles,” he said. “Shopping homeowners and auto policies every year or two is also a good way to ensure your policy is still competitive from a cost perspective.”
Assess Your Investments
“An indirect way to save money each year is to review your investments for tax optimization and expenses,” Harrison said. “Tax location is a strategy in which you own tax efficient investments in taxable accounts and tax inefficient investments in retirement accounts.”
He said this investment allocation approach can allow you to enjoy substantial tax savings over the years.
Additionally, he also advised reviewing your investment expenses.
“When you buy a Mutual Fund or an ETF, there is an underlying expense called an expense ratio,” he said. “This is the cost of owning the fund that is paid to the investment company that administers the fund.”
Often times, there are funds doing the exact same thing that charge substantially different fees, Harrison said.
Optimize Your Taxes
“The single best way for a high income earner to save money each year is through tax optimization,” Harrison explained.
He said this involves finding the answers to questions such as which kind of IRA is best for you and whether your investments are tax efficient or tax inefficient.
“There are so many layers to tax planning and the best way to save money outside of increasing actual savings each year and sometimes more so,” he added.
Increase Savings With Pay Raises
“Every time you get a pay bump or pay increase, fractionally increase your 401(k) savings or your automated brokerage account transfer,” said Alex Caswell, chartered financial analyst (CFA), certified financial planner (CFP), enrolled agent (EA), founder and CEO of Wealth Script Advisors. “By automatically making these transfers, you never, or almost never, see the money enter your bank account.”
He said this out of sight, out of mind approach will allow you to ignore your higher spending power and focus on building your savings.
Get a Higher-Paying Job
Many people find themselves at the same job for years, but most companies — especially larger ones — no longer offer a reward for choosing to build a long-term career with them, Caswell said.
“Almost always, the big salary bump comes from switching companies and changing roles and seniority,” he added.
He warned not to get comfortable at your job, so you remain open to pursuing more lucrative opportunities.
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Sources
- Stratton Harrison, Vita Wealth Management.
- Alex Caswell, Wealth Script Advisors.
