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This is a guest post from Barry Ritz of AssociateMoney. If you liked this post, be sure to stop by and visit his blog.
Recent studies show that more Americans are now saving their money instead of spending it. With the economy in a bad recession, people fear losing their jobs and income. So instead of buying unnecessary items, people are putting money into emergency funds.
Lack of discretionary spending actually hurts the economy, but I will not blame the frugality converts because I am also an avid member. In any case, the economy will not rebound anytime soon and we may need to ride out the hardships in the next 3-5 years time.
Even with Obama’s stimulus plan, it will not really push Americans to spend more. Most people will just put that money away as well. Meanwhile, if you look at savings account interest rates, most have been dropping, so you are getting little in return from these savings accounts.
Here are some tips to help you save more and cut out on expenses:
Refinance Mortgage Loans
Today’s rate on a 30-year fixed rate mortgage is as low as 4.50 percent. If you plan to stay in your home for more than five years, or if your current interest rate is high, then you certainly should talk to your local banker. You could save literally tens of thousands of dollars over the life of your loan.
As an example, a $120,000 mortgage with a current rate of 6.25 percent refinanced at 4.50 percent can save you as much as $70,000 over the life of the loan.
Negotiate Credit Card Balances
If you have outstanding balances, you could be paying as high as 28 percent interest. Take the time to call your credit card company and ask them to reduce your rate to their lowest advertised rate. Despite the credit crunch, banks are reluctant to lose good customers who made payments in a timely manner.
To retain your business, they will lower your rate. You will be surprised that a simple phone call can save you thousands of dollars.
Tip: If you have good credit, you may also want to try transferring your balance to a new card with 0% interest and aggressively paying off the balance. Discover Card offers 0% for twelve months.
Pay off Debts Progressively
The best way to save money has always been by reducing your debt first. The theory is simple but many people do not practice it as they don't realize how much they can save by simply paying a small extra amount to their principle each month.
It’s like lending the money to yourself, rather than borrowing from the bank. Often you can pay off installment loans in half the time by increasing the payment by a small amount. Again, you can ask a professional financial adviser to provide you a calculation of the savings.
Start An Emergency Fund
Savings is a safety net for those times when emergencies occur. Although deposit rates are low, it is still a great time to start a rainy day fund. The only way to accumulate any meaningful savings is by contributing to the fund on a consistent basis. Set up an automatic draft from your checking account or better yet, from your direct deposit.
By adding a little each week in a separate account you will see dramatic results over time. As the amount builds, you can purchase Certificates of Deposit to earn higher rates of interest. The hardest part for most of customers is developing a plan.
People who are new to putting money into savings can start small. Go for savings accounts which have no minimum balance. Ideally, you should accumulate up to six months of living expenses into a savings account so that whenever an emergency occurs, you can use their own savings rather than depending on credit to pay for it.
Tip: Online banks like HSBC usually offer higher interest rates than traditional banks.
Start A Household Budget
Take the time to develop a household budget so that you don’t spend beyond your means. Weigh your expenditures each month, review all of your loans and savings goals. Having a healthy spending balance is important when it comes to building wealth and saving money. Depending on credit to pay for car repairs or groceries will get you nowhere and only create a debt snowball.
Tip: Consider using the free Quicken Online program to help you monitor your income and expenses. Quicken is America's #1 Personal Finance Software.
Putting money into a savings account may be difficult at first, but the important thing is to get started. Don't bind yourself to any hard and fast rule though as everybody has different circumstances when it comes to saving money.
In a final note, we should stay optimistic. Though America is in the middle of a financial crisis, I believe we will get through it eventually. By returning to the basics, we may even be better for it in the long run.