If you take $100 a month and place it in a high-yield savings account at 4.5 percent, you’ll save $10,000 in just over seven years -- enough for a 5 percent down payment on a $200,000 house. Start this program when your child is born, and when she’s ready for college 18 years later, you’ll have over $33,000!
But where are you going to get that $100 a month?
If you have a modest income, it may seem like you can’t set aside any money at all. Medium- and long-term savings goals may seem hopelessly out of reach.
Don’t despair. You can meet your savings goals -- and you don’t have to live on bread and water to do it. Here’s how you can painlessly start saving $100 a month, whatever your income:
• Stash your loose change. Remember that piggy bank you had as a kid? Blow off the dust and put it on your dresser. Each evening, empty your pockets and drop all your loose change into it. Once it’s full, roll the coins and deposit the money into your bank account. You’ll be amazed at how fast it adds up. Just three quarters, one dime and one nickel a day will net you $27 a month.
• Fill the freezer. How often do you come home late and feel too tired to cook dinner? So you call for a pizza, or pack up the kids and head out for burgers. You can avoid paying extra for expensive fast food by planning ahead. Cook large batches of your favorite dishes and fill up your freezer: Barbecue a dozen hamburgers, make a big pot of chili and another of spaghetti sauce. Make up small bags of chopped vegetables that can be microwaved in a flash. If you cut out just two fast-food meals each month, you can easily save $45.
• Check your credit card rate. If you carry a substantial balance on your credit card, you may be able to save a bundle by obtaining a lower interest rate. That’s easier than it sounds. Competition in the industry is tough, and some card issuers will reduce your rate immediately if you simply call and request it. Others will lower your rate substantially in exchange for an annual fee, which could be much less expensive over the long term. For example, if you carry an average balance of $2,000, and you cut your rate from 18 percent to 10 percent, you’ll pay $13 less interest per month.
• Cut your utility bills. You can save how much you pay for electricity and natural gas by making some almost imperceptible changes. And we’re not talking about cold showers or stumbling around in the dark. Most people keep their hot water heaters cranked up too high; turn yours down to 120 degrees. Keep your home a little cooler in the winter and a little warmer in the summer -- even one or two degrees can make a big difference. Invest a few dollars in weather stripping and a programmable thermostat. These small adjustments could knock down your energy costs by $15 a month.
There you have it: An extra $100 a month you didn’t know you had!
Now it’s time for the second part of the plan. Set up a high-yield savings account to make your money grow. A number of financial institutions now offer online accounts that boast interest rates far higher than an everyday checking account. You can even make automatic deposits with funds from your checking account -- preferably once a month on a payday when you’re less likely to notice. Saving money like this takes advantage of the power of compound interest and will make your money snowball in no time.
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