5 Tips for Saving Money

Dixie Hoeh

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Understanding the best ways to save money for emergencies and retirement is tricky. Let the experts at Honor Bank help you make these important decisions.

1. DON'T UNDERESTIMATE THE POWER OF COMPOUNDING INTEREST.

Compounding interest is so powerful because of its exponential nature. It's a challenge for our brains to grasp this concept. To help, watch this super cool video on how folding paper can get you to the moon.

If you start investing at age 25 and invest the same amount of money until age 35, you will have more money at retirement than if you start saving at 35 and invest the same amount of money EVERY YEAR until retirement.

So, putting $5,000 a year away from 25 to 35 yields more than putting $5,000 a year away from 35 to 60? YES.

The 25 year-old who invests $55,000 will end up with $615,000 (given an 8% annual stock market return). The 35 year-old invests $130,000 will end up with $431,000.

The Take Away: Start investing today. Save now and save less.

2. WHAT IS THE BEST WAY TO SAVE MONEY?

A technique that we really like comes from Ramit Sethi, New York Times bestselling author and founder of iwillteachyoutoberich.com

Take cuts off your paycheck and automatically spend them towards the right things.

For example: Use 60% of your income to pay fixed costs, like rent, utilities, food and your credit card bill. Then, invest 10%, for example in stocks, your 401(k), or Roth IRA. Save another 10% for vacations, Christmas presents and unexpected costs. This leaves you with 20% of your money, which you can spend on whatever you like, guilt-free.

The Take Away: Take fixed cuts off your paycheck and automatically spend them towards your goals.

3. HOW TO BE FRUGAL?

Join the cult of Mr. Money Mustache. His blog has tons a great advice on how to reduce spending as a means 

As he writes, "The bottom line is this: by focusing on happiness itself, you can lead a much better life than those who focus on convenience, luxury, and following the lead of the financially illiterate herd that is the TV-ad-absorbing Middle Class of the United States (and other rich countries) today. Happiness comes from many sources, but none of these sources involve car or purse upgrades."

The Take Away: Take fixed cuts off your paycheck and automatically spend them towards your goals.

4. HOW MUCH MONEY DO I NEED TO RETIRE?

A well-known study called the Trinity Study (you may check it out on Wikipedia), boils this question down to what is known as "the 4% rule". More precisely, take your annual spending, and multiply it by somewhere between 20 and 50. This is your retirement number. If you use the number 25, you’re implicitly using a 4% Safe Withdrawal Rate, which is my own personal favorite number.

If your retirement savings are invested in stocks or other assets, they pay dividends and appreciate in price at a total rate of 7% per year, before inflation. Inflation eats 3% on average, leaving you with 4% to spend reliably.

Looking For A Tool? Use our handy How Much Will I Need to Save for Retirement calculator. 

5. WHAT IS THE BEST SAVINGS ACCOUNT?

Of course we may be biased, but Kasasa Saver® is awesome! It links to your free Kasasa Cash® or Kasasa Cash Back® checking account to build your savings automatically each month. When you earn cash rewards in your Kasasa checking, those earnings auto-transfer into Kasasa Saver®. Plus, Kasasa Saver® pays a high rate of return!

Learn more about Kasasa Saver

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