In a world where the stock market is struggling to recover, your best bet may be to just increase your savings and accept a lower investment return. Finding the money to save for your future isn’t always easy, but there are some simple things you can do right now.
Some of your insurance policies allow you to manipulate the premium by changing the deductible you pay. The deductible is an amount of money that you must pay out of your own pocket before the insurance company pays for any of the claim.
If you rarely use some or all of your insurance policies, it’s time to increase the deductibles on those policies. In many cases, you can increase the deductible to $500 or even $1,000 on auto and health insurance policies and save the difference. If you invest the savings wisely, you’ll always have access to it when you need it. If you never use it, then it will just sit there in your investment account earning interest for your future retirement or some other financial goal.
Since you might need this money for future deductibles, choose an investment that makes sense. Relatively liquid investments like short-term bank CDs and money market mutual funds are ideal. If you’re over age 59-1/2, you can use a 1-year annuity policy issued by an insurance company. These policies typically pay a higher rate of return than bank CDs and money market funds, but you will only have access to roughly 10 percent of the total accumulated value; so keep that in mind.
Even if you’ve worked for your employer for many years, you can still change the amount withheld from your paycheck. While you might be scared to do this, the alternative is to let the IRS have an interest-free loan for the entire year on the excess withholding amount you give to it each and every week or month. The withholding calculator will walk you through the process of optimizing your withholding.
The net effect of this is that you will receive a smaller tax refund at the end of the year. In most cases, this doesn’t really matter. Even if you normally spend your tax refund on something, you can still earn interest on that money by keeping it in an investment account you own and control rather than allow the IRS to hold onto it throughout the year.
It’s not something that most people think about, but eating healthy saves you money in two ways. First, you will likely visit the doctor less often during the year. Secondly, you’ll see an immediate reduction in your grocery bills.
Shop around the outside perimeter of the grocery store. You may be surprised to learn that fresh veggies, fruit, and even some meat and seafood isn’t as expensive as you think. Protein is very satiating, and fruits and veggies that are high in fiber will keep you full for longer periods of time. This has a very real impact on the amount of food you need to buy, and thus your grocery bill. Instead of buying cheap junk food, you can spend a little more per item on vegetables, but actually lower your overall grocery bill. Also consider limiting dairy or gourmet foods. These items tend to be some of the most expensive items in the grocery store. Keep it simple, and you’ll not only save money here but you’ll also be more healthy.
It’s not always prudent to switch investments to lower investment fees, though this can save you a lot of money. What you want to do is make sure that the fees you’re being charged are in-line with the performance of the investment. If your mutual fund has an expense ratio of 2 percent, but your fund earns 4 percent, then you’re only making 2 percent net of fees. If the total fees for the fund are 3 percent but you average 7 percent annually, then you’re in much better shape despite being charged a higher fee. This, in turn, will help you earn more in your portfolio without having to sacrifice anything.
Some insurance policies just don’t make sense given your lifestyle. If you carry an accidental death and dismemberment policy, you can probably ditch it unless you work in an industry with a high rate of accidental death. The same holds true for many supplemental insurance policies like sickness, cancer, or supplemental health policies. These policies pay you a cash payment when you file a claim, and you’re allowed to use the money for whatever you want. Instead of buying these insurance policies, save the money and invest it.
Many insurers will give you a discount for combining your insurance policies. If you hold life, auto, and homeowners (or renter) insurance with the same company, you’ll receive a discount off of all of your premiums.
What you may not know is that not all insurers give the same discount for consolidation. Shop around, and check the discounts handed out by various insurers. Sometimes, a combination of switching carriers and consolidating policies yields the most savings.
Debt consolidation will definitely save you money if you have a lot of high-interest credit cards and personal loans. However, if you can wrap this debt up into your mortgage, you can take advantage of a hidden benefit of debt consolidation. By refinancing your home, consolidating all of your debt, and stretching out the mortgage for 30 years (or more, if possible), you will drastically lower your monthly mortgage payment.
While this might initially seem foolish if you have a small credit card balance, the benefit to you is that your lower monthly payment lets you take advantage of interest-rate arbitrage. If your new savings earns 6 percent, while your mortgage costs 5, you’ll make money regardless of how long you hold onto your debt. The best part? You’ll be building up a savings to extinguish that debt eventually and in the meantime, you’re making money by holding onto a mortgage.
Byline: Guest post written by Elizabeth Goldman and brought to you by Wonga – the short term payday loans experts.
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