4 Proven Habits To Boost Your Savings Year After Year
Saving money isn't always easy. However, be proud of yourself if you not only accept the challenge, but desire to put aside an increasing amount each year.
Even with the best of intentions, figuring this out can be tricky, but you can do it. Here are four expert-backed ways to ensure you keep saving more money every single year.
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1. Pay Yourself First
"Reverse budgeting starts with your goals in mind and helps make sure you 'pay yourself first,'" said Stratton Harrison, certified financial planner (CFP), enrolled agent (EA), founder and financial advisor at Vita Wealth Management. "Determine the savings needed to reach your goals, automate those savings and then guilt-free spend the rest of your income."
Automating your savings on the front end allows you to spend the rest of your money as you please, while moving in the right direction, he said.
2. Assess Investments
"An indirect way to save money each year is to review your investments for tax optimization and expenses," Harrison said. "Tax location is a strategy in which you own tax efficient investments in taxable accounts and tax inefficient investments in retirement accounts."
He said this investment allocation approach can help reduce long‑term taxes. Additionally, he also advised reviewing your investment expenses.
"When you buy a mutual fund or ETF, there is an underlying expense called an expense ratio," he said. "This is the cost of owning the fund that is paid to the investment company that administers the fund."
Often times, there are funds doing the exact same thing that charge substantially different fees, Harrison said.
3. Optimize Taxes
"The single best way for a high income earner to save money each year is through tax optimization," Harrison explained.
He said this involves finding the answers to questions such as which kind of IRA is best for you and whether your investments are tax efficient or tax inefficient.
"There are so many layers to tax planning and the best way to save money outside of increasing actual savings each year and sometimes more so," he added.
4. When Pay Rises, Increase Savings
"Every time you get a pay bump or pay increase, fractionally increase your 401(k) savings or your automated brokerage account transfer," said Alex Caswell, chartered financial analyst (CFA), certified financial planner (CFP), enrolled agent (EA), founder and CEO of Wealth Script Advisors. "By automatically making these transfers, you never, or almost never, see the money enter your bank account."
He said this out of sight, out of mind approach will allow you to ignore your higher spending power and focus on building your savings.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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