Savings Strategy
money (Photo credit: 401(K) 2013)
I have always found that the easiest way to save money is to do so automatically whenever possible - effectively "hiding" the money from yourself, ideally in an account that is easy to deposit into but is hard to withdraw from. For example, having the money direct deposited into your 401(k) account from your paycheck each pay period or having funds withdrawn from your checking account into your savings account automatically each month. This ensures that you are "paying yourself first" and are removing the temptation to spend the money. Whenever you get an unexpected payment (i.e., a bonus or a raise), its best to try to save as much of that as possible and continue to live on the monthly salary that you received before the raise or bonus. It might be tempting to want to go out and buy a nice vacation or a new car, but being disciplined about saving will ensure you continue to build your savings over the long haul. I have found that saving a small amount each month for my kids' college funds, for example, is relatively painless and over time those amounts really build up. We set aside a set amount each month for each of our kids automatically and when the cash builds up to a certain level, the funds are invested. All our kids have Uniform Transfer to Minors Accounts (UTMA) now. I tried two different 529 plans over the years and each one had horrible investment returns. I think having the flexibility in how to invest and ultimately spend the funds outweighs the tax benefits and limitations (i.e., only can be used for higher education) of the 529 Plan.