How To (Money): Simple Ways to Save Money

Money is tight these days...we all experience this at one point or another. So how DO we save money? Keep in mind, this article isn't trying to tell you how to make more money (although some tips on how to make some money are included), but it will give you advice on how to manage and save your earnings. The intention of this article is to keep things simple, so readers aren't turned off by foreign words or complicated formulas.

Direct Desposit
From experience, most people I know can't wait for payday because now they can go and spend the money that they just made. They would cash their check, put some away in a bank, and go on their purchasing spree. A good way to control the amount you spend, and if the company you work for allows it (most will), is to have your paycheck directly deposited into your savings or checking account. Basically, the amount you made in that period of time automatically gets wired into your bank account. This way, you have to make your way to the bank to withdraw what you need...and I repeat, withdraw what you need, essentials such as groceries, bills, rent, and perhaps a night around town.

Banks
A good place to put your money is a bank. Why? Because they hold your money safely for you, and most places are insured up to a certain amount, usually $100,000. This insurance is denoted by the FDIC logo on all established banks. By default, most people place their money in a savings account. Most banks offer some sort of interest rate so that you would use their bank instead of others. But for the most part, these banks offer very little in interest, usually somewhere between 0.25-1.00%. If you want to make a little bit more from your earnings, consider opening a bank online. If you don't feel safe using the internet for your banking needs, feel free to skip the Online Bank section next. I don't want to convince anybody to go out of their comfort zone. But to those who are considering online banks, read on.

Online Banks
Online banks such as INGDirect, HSBC Direct, and E-loan, offer online savings accounts with a high interest rate. How do they do this? Think about your current bank. The banks have to pay their tellers and other workers along with the operational costs that go with a bank. All this is considered overhead costs. With online banks, everything is done online so the online banks save this money by not having such a large overhead cost. In doing so, they are able to provide you with higher interest rates for your savings account. Typically, interest rates fall around 4-5%. Linking your online savings account to your current bank's checking or savings account allows you to transfer money, whether you want to put more money into your online savings account, or you want to transfer money from the online savings to your current checking account so you can withdraw some money for your Christmas shopping. Most importantly, make sure the online bank you sign up for is FDIC insured, otherwise don't sign up. Typically, if the online bank is FDIC insured, it is relatively safe to put your money there. For more information, click on the online bank links in the beginning of this section...those are the more popular online banks. Shop for the best rates, and do what feels safest for you.

Retirement Fund
OK, I know what you're thinking...why should I start my retirement fund now? It will save you money NOW, and it will make you money LATER. If your company offers you 401K's or simliar accounts, take it. Here is the simplest way to explain this. Let's suppose you make $50,000 a year. The maximum contribution you can put into your 401K this year is $15,000. Let's say you want to contribute $5000 per year. Well, the good news is that $5000 is UNTAXED and goes straight into your 401K. This also means that you only get taxed on $45,000 instead of $50,000, so you owe less in taxes. Owing less in taxes means you are saving more money (save money now), and that money is automatically being put away into your retirement fund (make money later)! A good way to ensure that you are putting money away and saving as much as you can is to ask your employer to deduct a certain percentage of your paycheck into your 401K. This way, you can't touch that money and you know that the money is going in tax free. Plus, incentives such as company matching is basically free money. It's a no brainer...ask your employer about opening up a 401K if they offer it and ask them to explain the details. And if you have money on the side, start up a Roth IRA (if you are eligible...most of you will be). With a maximum contribution of $4000 this year, the interest you make will NOT BE TAXED when you withdraw it after your retire. That is FREE MONEY. Do it now.

If You Can't Afford It, Don't Buy It
How do credit card companies make so much money? If you are one of the many people who pay your credit card bills by installments, you just put your hard earned money into the credit card company's pocket. Most of the credit card companies charge high interest rates, which doesn't apply to people who pay their bills in full. A good way to calculate how much credit card companies make money off of people who pay in installments, you can use online calculators such as on Webwinder's website. For example, let's say you have a $500 credit card bill, with an annual interest rate of 18% and a minimum payment percent of 3% if you pay a minimum balance of $10. If you continue to pay the minimum $10 installment, it will take you 74 years to pay off your $500 bill and the credit card company will earn almost $300 in interest. So to put it simply, for your $500, you end up paying $800. If you have any type of credit card debt (paying in installments is basically being in debt, because you still owe the amount you haven't paid off), start paying this off first before anything else. Having credit card debt makes you have a low credit score (which will make loaners more weary to let you borrow money), and the sooner you pay it off, the less you owe the credit card companies, and the faster you will be out of debt. Bottomline, ONLY PURCHASE WHAT YOU CAN AFFORD TO PAY IN FULL. Otherwise, you are just throwing money away.