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If you are serious about having a healthy emergency money fund, you might want to curb the consumer in you. This means, instead of spending, saving. Of course, the number one, best way of saving remains to have a portion of your weekly paycheck automatically deposited to your savings account. If you like the idea of deciding, week by week, how much savings you will deposit, take heart and adapt a serious tip or two. It's all good if the end result is better and more savings.
Hold that "mother" of all garage sales, once and for all! Do your homework and literally do a house inventory. Journey back, all the way back, into the furthest reach of every closet and decide that, if you have not used it for more than six months, it will have to go. Most people have at least $1,000 worth of garage sale items hidden away in their home. This turns out to be a veritable gold mine for many.
Just how much do you need that nasty, pack-a-day smoking habit? In Washington state, that's easily $5 a day—or about $1,800 a year—that can go right into your savings. This does not even begin to touch the savings in insurance and health care.
Tame the driving tiger in you. Instead, carpool or use public transportation. This will save you on gas, insurance and maintenance costs—not to mention any money spent on a headache. Using the IRS's 2002 mileage reimbursement rate of 36.5 cents per mile as a proxy for the cost of commuting, you could save $1,141 a year by driving half the time for 50 weeks of the year (based on a 25-mile roundtrip commute). For an even more serious approach, consider nixing your car if you live in the city. Some cities are now implementing progressive programs that allow you to have access to a car without the ownership hassles (e.g. "Flexcar" in Seattle, Portland and Washington, D.C.)
Buy items used. The average consumer spends about $1,750 a year on clothing and its upkeep, according to the U.S. Bureau of Labor Statistics' most recent Consumer Expenditure Survey. You can easily cut that in half by shopping at consignment shops and auctions, though the life of the goods may be a bit less than buying new. To account for that, the annual savings may only amount to 25%, or $437.
Become a homebody. At just over $1,800 a year on average, entertainment spending has a way of eating up the best-planned budgets. Consider the library for books, music and movies. Eat out less often. The average person spends $2,276 a year on eating out. Try cutting your spending in half on both areas for annual savings of more than $1,900.
Cut your housing costs. While a move across the tracks may save some money, moves are expensive. Consider renting out a room in your house.
The average housing costs per person in 2004 were just over $13,200. In metropolitan areas such as Seattle, rooms easily go for $400 a month. Figure about $20 of that goes to increases in utility costs, and you've still realized annual savings of more than $4,000 before any income taxes.
Cut up every one of your credit cards. Build an emergency fund first to handle most unexpected expenses. This allows you to become your own lending agency. Credit cards can be a cash-flow management tool, but paying only the minimum will keep you in debt for years.
If you're the average American with at least one credit card, you probably have close to $8,523 in credit card debt, according to industry research group CardWeb.com. At an average APR of 14.4%, it could cost you as much as $1,100 a year in interest rates alone. By simply waiting until you've saved enough money to make purchases, you could eliminate those interest payments.
If you're very ambitious and follow all the above tips, you could be looking at savings of some $12,000 a year. Figuring you can invest that at the historical rate of return of 10%, your savings do start to compound nicely—and rapidly. Instead of the debt, go for the emergency fund and save.
Make Small Cuts for Huge Savings
Tilt the wheel of creating wealth in your favor. Naturally, spending less is one way. However, to be sure to make your money work harder for you—set goals to make certain it happens.
Many have wondered what can be the foolproof way of creating wealth. Is it to buy top paying Internet stocks or to work for a tech startup that offers you valuable stock options? Is the trick to count every penny or is the road to wealth paved with risk? Do you have to be especially smart and well-connected? Alternatively, is becoming wealthy a matter of luck?
The answer is: There is no one, true road to wealth, and all of the above have created wealth for more than just a few notable individuals. Nevertheless, you can put the odds of creating wealth on your side by following a few simple precepts.
Spend less than what you earn.
This can be the most overlooked scenario, because many people believe it's a matter of cutting back on your current standard of living—a strategy that's far too difficult for many people. Yes, you can affect your personal balance sheet by spending less money eating out or on entertaining out. Making a pot of coffee at the office instead of buying a $3 espresso will make a small difference in your cash flow. Nevertheless, the biggest difference will be made on the income side of the ledger.
If you wish to get on the right road to saving, stop looking at your budget as a pie that must be cut up into various size pieces. Instead, of trying to figure out how the different pieces will cover your expenses, concentrate on how you will expand the size of the pie. Yes, you could ask your boss for a raise. At the same time, figure out how you can begin to earn more money on the side. Start thinking about how you will sweeten the existing pie.
Think about how you're spending your time, as well as your money. Perhaps instead of taking the family out this weekend, you could earn an extra $80 by becoming a waiter or bartender. Instead of taking the kids shopping at the mall, you could work as a salesclerk earning some extra cash.