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Everyone
knows the importance of setting aside savings. Whether
it's for retirement, emergency funds or saving for
the family vacation, it is something that we should
all be doing. Yet sometimes this isn't as easy as
we would like and at the end of the month our money
is spent without setting anything aside. The financial
services industry has become aware of this and has
created tools to help us save. If you have difficulty
saving, these tools may be your best way to ensure
you have savings for whatever comes.
Direct Deposit
Of all the tools to help you save, direct deposit
has been around the longest. Direct deposit is when
your employer deposits your paycheck directly to your
checking, savings, retirement or brokerage accounts.
Many times an employer can deposit your check to more
than one account. If this is the case, to help you
with your savings, you could split your check up by
how it will be used. Spending money could go into
your checking account, investment money into your
brokerage account, retirement into an IRA or 401(k)
and a percentage into a savings account. This way
you don't have to actually move the money into savings,
investments or retirement yourself, it is done for
you automatically at the beginning of the month. Setting
up direct deposit is usually just a matter of completing
a form at your workplace. For many people, money that
goes directly into savings is forgotten and therefore
less easily spent.
Automatic Investments
When direct deposit isn't an option or you just want
another choice, automatic investments is a good way
to help you save. With this, your paycheck goes into
one account and then you setup times during the month
when money is taken from this main account and put
into other accounts such as IRA's, investment accounts
and/or savings accounts. This is something you schedule
in advance and takes place on a monthly basis. This
way, you don't have to remind yourself to do it. This
is very similar to direct deposit but where your bank
or financial institution is doing the work for you
instead of your employer.
This could also be used if your direct deposit limits
you to one account or only allows you to split up
your check by percentages. If this is the case, you
can direct deposit your paycheck into the account
where you have setup automatic investments and then
have dollar amounts go into different savings accounts.
This is helpful for depositing into accounts like
IRA's where you can only invest a certain dollar amount
each year and you don't want to go over your limit.
Tax Return Money
When tax season comes, consider saving your tax returns
instead of spending them. This is an especially good
idea for those who have a difficult time saving on
their own. You can deposit your tax return directly
into a savings account and start yourself a little
nest egg. If you worry about your ability to keep
it in that savings account, consider putting a lot
of it into an account where you cannot get it out
easily, such as an IRA, a CD or an investment with
redemption fees when you take it out too quickly.
If you don't have any issues with keeping your savings
intact, instead of determining where your tax return
money should go, you should instead determine why
it is not coming to you in the first place. The IRS
website has a calculator that will estimate your federal
taxes and tell you what exemptions are appropriate
so you can break even on your taxes each year. Doing
this will give you more money each paycheck which
enables you to start saving immediately instead of
waiting for tax time. This also allows you to earn
interest on that money for a longer period of time.
Investment/Savings Credit Cards
Credit cards that actually help you save money? For
people who use a credit card for convenience and rewards
and not for the ability to carry a balance, this is
a great opportunity. Recently, a few cards have come
to the market that offer investment or savings points
when you make purchases. Fidelity Investments, Motley
Fool and American Express are some of the first companies
to offer these types of Credit Cards. The way they
work is for every dollar in purchases, you earn points
to put toward investments or savings that you choose.
Once there are enough points to reach a threshold
(determined by the card), the points are redeemed
as cash and deposited to an investment account, retirement
account or savings account that you have designated
ahead of time.
Workplace Savings Plans
Many employers now offer workplace savings plans.
These come in many shapes and forms, not just 401(k)'s
but 403(b)'s, 457 plans, Roth 401(k) plans, etc. To
contribute to a workplace savings plan, money has
to come from your paycheck since they are employer
sponsored plans. Your employer asks you to indicate
what percentage of your paycheck should be deposited
to your retirement savings account. Once this is done,
that percentage will come out of your paycheck each
time and go directly into your retirement account.
It is difficult and sometimes impossible to retrieve
money from your retirement account while working for
that employer so this is a great savings tool for
those who have a hard time setting aside money. Workplace
savings also is good as it lowers your overall tax
burden for the year, giving you even more savings.
Automatic Increases
The last way to help increase your savings is to use
an automatic increase program on your workplace savings
plan. Not all employers offer this; contact your human
resources or benefits department to see if it is an
option. These programs facilitate saving for retirement
by automatically increasing your retirement savings
each year. You generally choose what percent you want
to increase the savings by as well as the date. When
the chosen date comes, a larger percentage of your
paycheck starts going into your workplace savings
account. You can have it take effect right after annual
salary increases each year making it less noticeable
in your take-home pay.
If saving money isn't one of your stronger qualities,
these savings programs can help. Savings is the best
way to avoid financial ruin. Having money set aside
for an emergency, job loss, car and home repairs,
or any unexpected expenses prevents you from having
to take loans to cover these problems. In addition
to liquid savings, retirement savings and college
savings are long-term goals that often get overlooked
or procrastinated. Taking advantage of one or several
options from above is the first step in creating a
healthy financial future for you and your family.
About the Author
Emma Snow is a writer who specializes in financial
planning. She has worked in the financial industry
for over eight years. Currently Emma works on a Finance
and Investing site at http://www.finance-investing.com
and Investing Partners http://www.investing-partners.com
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