With the American economy experiencing a slowdown that could send it in to a recession, families need to save their dollars.
Tough economic times means that companies are less likely to hand out salary increases, and in many cases, they cut their payroll.
Being prudent with your money during a downturn can help you avoid financial instability.
There are numerous ways a family can save, and all of them are worth considering -these will allow you to put more money in your back pocket, and use it for your retirement and the kid’s college tuition.
Let’s take a closer look at the steps you can take.
1. Review Your Budget
The first place to start is by reviewing your budget. Do you know where you are spending your money? Take account for every penny you spend during the month. If you break everything down into categories, you’ll get insight into what areas of your finances are consuming the most of your income.
A reasonable budget should take into account your housing costs, utilities, living expenses, food, and entertainment. You can further subdivide all of these categories.
For example, with utilities, you can break this down into an electrical and your water consumption. By clearly understanding all of your expenses, it gives your ideas on where you can cut back.
Being frugal with your money doesn’t have to impact your lifestyle.
All you need to do is cut back on necessary purchases.
For example, do you need that second cup of coffee from Starbucks? Examine your expenses and do whatever you can to shave a few dollars off of your purchases throughout the month.
Look at other expenses like cable and streaming services. Do you need Amazon and Netflix? Cut duplicate subscriptions services that are costing you money.
How many times do you eat out in a month? Every family deserves to get out once and a while, but review your choices for the most affordable restaurant options. Instead of eating out every week, try once every two weeks instead.
If you are looking for a way to keep track of all your bills, spending, and investment accounts, Personal Capital is probably the best free app on the market currently. Read our full review to find out more.
2. Use Coupons and Discount Platforms
Another easy way to save money on your monthly budget is to make use of coupons and discount vouchers. There are countless websites offering discounts on anything, from groceries to electronics. If you are heading to the grocery store, check out the site of the retailer for any coupons or discounted products.
Compare the pricing and the quality of your favorite retailers. You might find that one of them is better for specific items, such as household cleaners, while the other is better for fresh vegetables. Take advantage of discount coupons that come in the mail; many local businesses run promotions for local customers every week.
In America, it feels like you should never pay full price for any item. There are coupons and discount vouchers available for dinner with the family at fast-food restaurants and trips to the cinema. If you take a few minutes every week to scour your favorite discount websites for deals, you could save your family hundreds of dollars over a year.
3. Open a CD
Banks are always looking to raise capital from the public. These institutions offer certificates of deposit, (CDs) as a financial vehicle designed for drawing more deposits. CDs come with a higher interest rate on your money than parking it in a savings account. The bank uses this money to create other loans to customers.
The bank charges the new customer an APR, (Annual Percentage Rate) on their loan, and then offers you an APR on your CD that’s less than the lending rate. The difference between the two is the “spread.” The banks make their profits on the spread, and it helps them increase their shareholder dividends and profits.
With a CD, you commit to paying the bank a specified sum every month for a specified term. Some CDs have a period term as short as 3-months, while others can last for more than 10-years. The longer the term, the higher the APR rate the bank is willing to pay you for leaving your money with them.
CDs are excellent investment vehicles for saving for the annual family vacation or other short to medium financial goals. However, if you want to earn a higher return for your retirement and the kid’s college funds, then you’ll need to look at other investments instead.
4. Invest in Retirement Funds
Every family needs a long-term investment vehicle to ensure financial prosperity. Parents need to retire, and kids need to go to college. By saving for your kid’s college fund, you avoid the need for them to use student loans for their higher education.
Student loans will shackle your children with a debt that can take them up to 20-years to repay in full. By helping them with a college fund, you give them a head start in their adult life. Your retirement is also a significant concern that you need to plan for decades in advance.
An IRA is a pooled retirement investment managed by financial professionals. The government allows you to contribute $6,500 to your IRA annually, so make sure you are maximizing your contributions. If you have anything left over, open another mutual fund account with a financial services firm.
Using an IRA or mutual fund, a money manager invests on your behalf into the stock and bond markets. These individuals have expertise in finding high-yielding assets that offer low risk. The power of compounding interest makes this an ideal financial vehicle for long-term savings for the family.
5. Renegotiate Your Credit Card Rate and Insurance Premiums
If you’re using the same insurer and bank for a while, you have the right to call into the management departments and ask for a discounted rate. Insurance premiums for your home and car cost a significant portion of your annual income.
Reducing this expense is not as challenging as you think. If you have not had an auto accident in over 5-years, and no infractions on your driving record, then negotiate with your insurance company for a discount.
Many insurers will be happy to adjust your rate to keep your business. You can do the same with your credit cards and personal loan facilities as well. Credit card companies are a dime a dozen, and many of them are willing to negotiate your APR if you are a right customer with an excellent credit score.
Make sure you’re signed up to the credit card company’s rewards program as well. Many credit card companies offer cashback programs that return you 1-percent to 3-percent of your total amount spent on your card. You can choose to add the rebate to your statement as a credit or receive it as a check in the mail.
6. Adjust Lifestyle Activities
Look at your lifestyle activities and see where you can cut back. Smoking and drinking are two areas where adults should not be spending money. Both of these self-destructive habits ruin your health, and that of your family as well.
Instead of spending money on cigarettes and liquor, think about how much money you would have in your investments if you divert the funds to other assets. As we approach 2020, alcohol and smoking have no place in the family unit, and its best to put these habits to rest.
7. Trade Your Car in for Something Economical
Gas is a significant expense for any family. Cut your costs by trading in your gas-guzzling SUV for something more economical. By reducing your transportation costs, you can contribute more to your investments. If you save one tank of gas every month, imagine how that will add up over the decades.
If you travel to work by yourself, consider carpooling with other colleagues or people from your neighborhood that are going near your office. Carpooling reduces commuting expenses for everyone involved – and it’s kinder on the environment as well.
Many Americans make the mistake of attaching their identity and status to their vehicle. As a result, they are always looking to lease something bigger and better than they previously owned. There’s nothing wrong with upgrading your car, as long as you can afford the upgrade.
If you’re trying to save money, then consider cutting back on your next car lease. Go with something that’s both economical and affordable, and you’ll thank your financial foresight in your retirement years.
8. Move to a More Affordable State
If you’re looking to save thousands of dollars every year, consider moving states. While it’s a tough decision and an uncomfortable experience to move away from your home state, the financial benefits may be worth the hassle. Some states have far higher income and sales taxes than others.
If you live in New York or California, then you are paying more than your fair share in taxes each year. By moving to a state with a lower tax rate, you get to keep more of the income your work so hard to earn throughout the year.
Some states also have a lower cost of living than others. For instance, Virginia and Alabama are both great states for both low-income taxes and sales taxes that are some of the best rates in the country. You could also save on Medicare and education costs as well.
Read: Which are the Best & Worst States to Live in for Retirement? – Although this guide applies to retirement, it can also apply to someone wanting to lower their cost of living.
9. Consolidate Loans
How much debt do you have outstanding right now? If you’re dealing with multiple loans, each of them has individual fees that are costing you money. Consolidating your loans allows you to roll all of your outstanding debt into one account. This strategy makes managing and paying your debt far easier, and it reduces the costs involved with paying numerous accounts.
When you consolidate your loans, make sure you have an excellent credit score. By increasing your FICO or VantageScore, you get favorable rates from the lender when refinancing your debt. If you’re currently dealing with a cash shortfall in your monthly budget, refinancing your existing debts with a consolidation loan can help.
10. Increase Your Income
Our final tip involves increasing your income. By applying for a second job, you get to bring in more money for the family. Unfortunately, trading your time for cash will also take a toll on your family life as well.
Kids need parents around while they are growing up. If the parents are both at work all day and night, and sometimes on the weekends, then there’s little room left for developing family relationships. It’s for this reason that some many American families are breaking up. Financial hardship causes the parents to pay more attention to the bills than they do the kids.
As a result, families become disconnected and start to develop dysfunctions. Bringing in more income doesn’t have to cost you your family relationships. With the advent of the internet, anyone can make more money from the comfort of home.
Look for ways online that can earn you a few hundred dollars every month. Sites like Fiverr and Freelancer have plenty of freelancing opportunities in a wide range of industries and niches.
Here are some articles we have written about increasing your income:
- Best Online Jobs for College Students
- How to Make Money Online at Home
- How to Sell your Art Online
- Make Money Online as a Teen
- Use Your Hobbies to Make Money
- Best Work from Home Jobs
- Best Side Hustles: Top Ideas for Making Cash on the Side
The Final Thought – It Takes 90-Days to Change Your Behavior
Psychologists have some consensus around the fact that humans are creatures of habit. Our habits control more of our lives than we expect. For instance, you might enjoy two cups of coffee in the morning on the way to work. You’re likely to feel as if something is unfinished with your morning if you don’t have a second cup.
Making changes to your budget and expenses, and learning how to invest and save your money takes time. You can’t expect to move from your current financial behavior to another set of rules overnight. However, the more you practice your new money habits, the sooner they will etch into your mind as normal behavior.
Studies show that it takes around 90-days to break and change our habits. Therefore, if you give up your second cup of coffee in the morning, you’ll only feel strange about it for a few months. After a while, you’ll stop thinking about it, and life will move on.
Don’t think of saving money as being cheap. Every family needs to learn how to be more frugal with their expenses. In times of economic uncertainty, learning how to live with less, while still enjoying life, is an exercise worth practicing.