In the average household, money is tight and getting tighter.
Living paycheck to paycheck is the norm for most people and once the essentials are handled, there is nothing left to bank for emergencies.
According to the Bureau of Economic Analysis, Americans are saving only 4.5 percent of their annual income, down from 5.6 percent a year ago.
How can you save more money? Here are six simple ways to get started:
1. Eliminate your debt.
Despite how much you have been told to start saving and pay yourself first, it makes a lot more sense to pay your creditors first. Ideally you accomplish this by putting chunks of cash on your credit cards or other debt sources regularly.
If that is not feasible, the American Institute of Certified Professional Accountants (CPAs) suggest you should examine the pros and cons of refinancing. To do that, check your interest rates on your debt load. If you are paying a higher-than-average amount, then consider refinancing. Consolidate your debt into one loan with a lower interest rate and continue to pay it off as quickly as possible.
However, keep in mind that when you do this and you extend the life of your loan to make the payments more realistic, you can sometimes end up paying a lot more instead of less.
Other options are taking out a home equity loan, but if you are inclined to spend to the max when credit is available, this may not work for you.
If you have decided to pay yourself first and invest your money into savings vehicles without paying off your rent, do the math to see if you are doing the right thing. Does the money you are placing in a savings account with perhaps three percent interest actually generate more money for you than a credit card that is charging you 19 percent interest? It does not. Pay off the debt first.
2. Keep aware of government financial options to ease your burden
Tax credits rise and fall, government incentives come and go, and programs are introduced and cancelled, and if you don’t stay aware of all of these three things, you will miss some great opportunities to save your own money.
As an example, if you have a child of college age, make sure they are aware of income-based repayment (IBR) for federal student loans.
According to the U.S. Department of Education, already two million borrowers have applied for IBR which allows qualified borrowers to tie their monthly federal student loan payments to their discretionary income.
Phased in on Dec. 21, 2012, this program benefits college borrowers tremendously.
This is just one example of how knowing what options are open to you can help you save money.
3. Spend like a millionaire
The world is full of frugal millionaires who worked hard for their money and see no need to waste what they have. Trying to keep up with the rich and famous is a fool’s game. Instead, take a tip from the really rich and live in a situation that makes you comfortable and yet promotes a frugal lifestyle.
Of course the best known example of this is Warren Buffett who has become legendary for continuing to live in the modest house he bought for $31,500 in Omaha, Nebraska in 1958.
Mark Zuckerberg, Facebook’s billionaire founder, has been photographed driving his Acura TSX with its approximately $30,000 price tag instead of a much fancier set of wheels.
The message from these rich tycoons is pretty basic. You do not have to define your status by your luxurious goods. You are who you are and that speaks for you, not what you buy or drive around in.
If you want to save money, handle it as frugally as many of those who made a lot of it. Some of them clip and use coupons, some buy things at yard sales, some frequently check Craigslist and eBay.
4. Pay yourself after you’ve paid off the bank
When your mortgage ends or your car loan is finally paid off, keep making the same payment to your emergency fund savings account. If you don’t, the money will naturally expand to fill the hole left for it in your budget and before you know it, it will be gone each month and you will have nothing at all to show for it.
But if you are in the habit of not having that money, you will be amazed at how your savings will add up if you just continue to make the payment to yourself. Then, when the roof starts to leak unexpectedly or your car needs unbudgeted repairs, you can pay for it without piling up more debt on your credit card.
5. Quit one of your expensive habits
People who don’t gamble or throw their money after antique cars or other expensive habits often congratulate themselves for their frugality.
But even if you don’t have any of the obvious money vices, you can still waste more money than you should if you are a smoker or a wine connoisseur or a collector of shoes.
These habits can really add up. Smoking just one pack and a half of cigarettes a day comes to about $3,000. Some families spend up to $1,000 a year on soft drinks and bottled water and have nothing to show for it.
To determine how much your habits are costing you, it is a good idea to take each expense and determine how much it amounts to a year. That’s when you begin to get a really clear idea of where your money is going and if you are really getting the value you deserve from it.
6. Never shop without a list
It may sound boring and restrictive, but if you don’t have the money you want, one way to start getting it is to hold yourself to a pre-determined list every time you go into a grocery store or department store.
By planning meals you can save between $150 to $170 a month, according to Cat, author of the BudgetBlonde website. Not only that, but you usually eat more nutritious meals when you prepare them and eat at home.