How to save $1,000 this year
Though Americans are slowly but surely ramping up their savings game, most are still falling short in that arena. An estimated 57% of US adults have less than $1,000 available in savings, while 39% have absolutely no savings at all.
Clearly, this means most of us need to do better. With that in mind, here are a few key habits that can lead you to healthier finances.
1. Following a budget
Most Americans don't follow a budget despite the fact that it's one of the most effective money management tools. If you're eager to get a better handle on your finances, then it's crucial that you understand where your income is going month after month.
To create a budget, simply list your existing monthly expenses, factor in one-time expenses (like your insurance payment that comes due once a year), and compare what you spend to what you earn.
If you're living paycheck to paycheck, which is the case for most Americans, then you'll need to examine your various spending categories and decide which ones to cut back on.
2. Automating savings
It's hard to spend money you don't gain access to. If you haven't been the best saver in the past, one solution is to set up an automatic savings plan, whether by having money from each paycheck filter directly into the bank or into your company's 401(k). This way, you'll be assured that at least some portion of your income is being saved, thereby eliminating the option to spend it frivolously.
3. Avoiding impulse purchases
If there's one thing that can really derail your savings efforts, it's an impulse purchase. And if you've fallen victim to such purchases in the past, you're certainly not alone. It's estimated that five out of six Americans make impulse purchases, and 20% who have gone this route admit to spending $1,000 or more on a whim.
To avoid wasting money, institute the 24-hour rule for nonessential or unusual purchases: When you get the urge to buy something, commit to waiting 24 hours before moving forward. Chances are, you'll come to your senses within that time frame and realize you're better off banking that money than purchasing an item you don't really need.
4. Paying bills right away
Not only can paying your bills on time help you avoid late fees, but it can also play a huge role in helping you build and maintain good credit. Therefore, it's wise to get into the habit of paying your bills as soon as you receive them. Better yet, sign up for autopay options whenever they're available to eliminate the possibility of being late.
5. Reviewing your credit report every four months
In a study last year, 16% of Americans admitted to never checking their credit reports. If you're one of them, then it's time to change your ways. That's because an estimated 20% of credit reports contain errors, and if you don't take steps to correct a mistake on your record, it could end up dragging down your score, making it more expensive to borrow in the future.
You're entitled to a free copy of your credit report every year from each of the three major bureaus: Equifax, Experian, and TransUnion. As such, it pays to request one online every four months, review it thoroughly, and report any errors you spot. This will also help you avoid falling victim to identity theft.
6. Studying your bills for errors
How often do you pay your credit card bill without reviewing your statement line by line? Many of us don't take the time to thoroughly study our bills, but by not doing so, we risk paying for charges that aren't actually valid. Pledge to never pay a bill before reading it from beginning to end — you'll reduce your chances of overpaying.
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If you're serious about saving money and improving your financial picture, then you'll need to adopt these smart habits. The good news? All these suggestions are easy to incorporate into your life, and once you do, you'll be happier for it.
CNNMoney (New York) First published April 17, 2018: 10:41 AM ET
FAQs
Let's look at six big personal finance topics—budgeting, saving, debt, taxes, insurance, and retirement—and discuss a helpful principle for each.
What are the 5 points of personal finance? ›
Personal finance basics include budgeting, saving, investing, managing debt, and understanding credit. Budgeting involves tracking income and expenses, setting financial goals, and making informed spending decisions.
What is the 10 rule in personal finance? ›
The 10% rule, often mentioned in personal finance discussions, recommends putting (yep, you guessed it) 10% of your income toward savings and investments. It's a simple way to encourage financial responsibility and help you build a solid financial future.
What is the #1 rule of personal finance? ›
#1 Don't Spend More Than You Make
When your bank balance is looking healthy after payday, it's easy to overspend and not be as careful. However, there are several issues at play that result in people relying on borrowing money, racking up debt and living way beyond their means.
What are the 6 C's of finance? ›
The 6 'C's — character, capacity, capital, collateral, conditions and credit score — are widely regarded as the most effective strategy currently available for assisting lenders in determining which financing opportunity offers the most potential benefits.
What are the 6 elements of financial system? ›
This course serves as an introduction to the financial system. It breaks down the financial system into its six elements: lenders & borrowers, financial intermediaries, financial instruments, financial markets, money creation and price discovery.
What are the 5 C's of finance? ›
The five C's, or characteristics, of credit — character, capacity, capital, conditions and collateral — are a framework used by many lenders to evaluate potential small-business borrowers.
What are the 5 P's of finance? ›
What is the 5P's? The 5P's represent - People, Philosophy, Product, Process, Performance. In finance, the 5P's served as a rule-of-thumb guide for our evaluation of whether to invest in a particular fund - hedge funds or private equity funds in my context.
What are the six key areas of personal financial planning? ›
This article will discuss the six essential types of financial planning that you should be able to provide, including cash flow planning, insurance planning, retirement planning, tax planning, investment planning, and estate planning.
What is Rule 69 in finance? ›
The Rule of 69 is a simple calculation to estimate the time needed for an investment to double if you know the interest rate and if the interest is compounded. For example, if a real estate investor earns twenty percent on an investment, they divide 69 by the 20 percent return and add 0.35 to the result.
The rule requires that you divide after-tax income into two categories: savings and everything else. As long as 20% of your income is used to pay yourself first, you're free to spend the remaining 80% on needs and wants. That's it; no expense categories, no tracking your individual dollars.
What are the 4 principles of personal finance? ›
It is important to be prepared for what to expect when it comes to the four principles of finance: income, savings, spending and investment. "Following these core principles of personal finance can help you maintain your finances at a healthy level".
What is the golden rule of personal finance? ›
But you should also note that other experts recommend “the 36% rule,” which states that your debt-to-income ratio should never pass 36%. The golden ratio budget echoes the more widely known 50-30-20 budget that recommends spending 50% of your income on needs, 30% on wants and 20% on savings and debt.
What are the golden rules of finance? ›
What are the Golden Rules of Accounting?
- Debit what comes in - credit what goes out.
- Credit the giver and Debit the Receiver.
- Credit all income and debit all expenses.
The 4% rule says people should withdraw 4% of their retirement funds in the first year after retiring and take that dollar amount, adjusted for inflation, every year after. The rule seeks to establish a steady and safe income stream that will meet a retiree's current and future financial needs.
What are the 7 components of personal financial? ›
The following are the seven important components of financial planning.
- Cash flow and debt management: ...
- Risk management and insurance planning: ...
- Tax planning: ...
- Investment planning: ...
- Retirement savings and income planning: ...
- Estate planning: ...
- Psychology of financial planning:
The six components of a financial plan include tracking income and expenses, budgeting, saving and investing, insurance, and retirement planning. By understanding and implementing these components, freelancers can create a secure financial future. It's essential to start planning as soon as possible.
What are the six principles of finance explained? ›
There are six basic principles of finance: 1) the principle of risk and return ties higher risk to higher potential returns, 2) the time value of money principle recognizes money loses value over time, 3) the cash flow principle prefers earlier cash flows to later ones, 4) the profitability and liquidity principle ...
