- If you work for a company that has a 401(k) with a company match, start there. That company match is essentially free money. And because your contribution is taken directly out of your paycheck, you won't miss it as much. Plus you get a tax deduction, so you're ahead there as well.
- Open an IRA. Depending on your income and whether you have a 401(k), you could qualify for either a tax-deductible traditional IRA or a Roth IRA. Both are easy to open and put money in. The maximum IRA contribution for the 2008 tax year is $5,000. When you think about it, that's only about $13.70 a day.
Consider putting your tax refund in your IRA. The Pension Protection Act, signed into law last summer, gives taxpayers the ability to directly invest all or a portion of their tax refund into an IRA, making it an easy and painless way to save.
- If you work for yourself, set up a small-business retirement plan. Contribution limits are generally higher than limits for IRAs, so you can save more and increase your potential for tax-deferred growth.
Another way to indirectly save is to get out of debt. When was the last time you figured out how much you're paying in interest each month? Pay off those high-interest cards and it's like giving yourself a risk-free return.
SMALL WAYS TO SAVE
These ideas are all well and good, you might be saying, but paying daily living expenses and saving for my kids' college take almost everything. Where do you find more money to save?
We've all heard the idea of dropping the latte habit. Here are some other ideas on how to squeeze out a few more dollars a month:
- Become a one-car family or take public transportation when you can.
- Pay your credit card bills on time and avoid late fees.
- Bundle your phone, Internet and cable services and negotiate your rate.
- Drop your expensive gym membership. Instead, find a low-cost community center or work out at home.
- Change your calling plan if you're not using all the minutes you're paying for.
Small savings like these can really add up. When it comes right down to it, the keys to financial success are not so much what you make or how you invest, but what you spend and how much you save.
My personal advice to the couple who e-mailed me - and to anyone who's looking for smart ways to save - is to start with a budget. Tracking your expenses is the only way to truly understand where you can cut and how much you can save to reach your goals. Then establish an automatic savings plan, so you always "pay yourself first" no matter what your other expenses are.
Once you accomplish these two things, you can step back, relax a bit and look for ways to add some balance to your life - no matter what generation you're in.
