Whether you are brand new to savings and investing, or whether you have been saving for a while, there are always a few things you can consider adjusting in order to give yourself more flexibility in your monthly budget. After all, every extra dollar you can save and invest today will have a huge impact on your finances after 20 to 30 years of compounding growth. I’ll go into the power of compounding interest in another post, but I think it’s most important to realize that EVERYONE can and should be on a savings plan, no matter how small.
Everyone Can Find a Way to Save Just a Little More of Their Hard Earned Income
It’s just a matter of getting yourself started – and there should really be no excuses. I’ve met retired LTCs with a full pension and a nice six digit post-military income with ZERO dollars to his family’s net worth; they simply spent it all somehow. Now, contrast that with a young E-6, who had begun saving as soon as he entered the military and already has a net worth of around $200K.
How is this possible? We all know the income discrepancies between officers and enlisted. These are true stories, and there are many more I’m sure that you could share with me as well. Now, I realize that they are the extreme, but let’s look at a few ways either a new investor can get started or an existing investor can improve.
1. Have Someone Take a Good Hard Look at Your Tax Returns
I realize everyone likes to get that nice big fat refund each year at tax time. Most people already have big plans on how they’re going to use it. Pay off credit card debt, go on a vacation, or maybe just buy something nice they’ve been waiting for. But in reality you’re just giving the government an interest free loan for more than a year.
That money should be working for you during that time! Reset your mindset about the refund and choose to not want any money back. If you want that big ticket item you should plan to save for it well in advance. But your tax refund should be invested in your accounts, earning you interest in the meantime.
So, each year make sure you speak with someone who knows how to look at a tax return and your LES (or pay stub) and can make sure your deductions are correct. Depending on your life situation, a small adjustment could put hundreds of dollars back into your monthly budget.
2. Open a High Yield Savings Account Away From Your Normal Bank
The idea is to use the “pay yourself first” mentality. With a good financial plan, you’ll know the number you need to put away each month in order for you to hit your long term goals. The question is, can you commit to that number and adjust your current lifestyle accordingly?
So why use a third party bank? Well, there are a few reasons that might be a good choice to improve your savings habits. First, out of sight and out of mind. Each month that money comes right out of your checking and goes to an account you can’t easily touch. Second, you’ll be building that coveted emergency fund in a place that gets at least a better yield than sitting in your checking account. Third, its a great place to use as a conduit to begin funding your other investments once you get those programs started.
3. Stop Acting Like Your TDY Money is Fodder for Vegas!
I think most people are well aware that the majority of per-diem allowances are much larger than they need to be in most cases. Everyone is happy when they come home from a trip and file that travel voucher and rake in all the meal money because they didn’t eat out on the trip.
Don’t get me wrong, eating out is expensive and if you can save money in that department you’ll have major impacts on your budget. However, rarely do I see someone turn around and treat that money as a little bonus and put it back into their budget. In fact, that money should go directly into the high yield account I mentioned above. If you are doing that, then huge high fives all around. Know that you stand above the crowd.
There Are Plenty of Hidden Places to Find an Extra Few Bucks to Save and it Adds Up Fast!
I hope this give you just a hint of the many little things you can look at or adjust in a monthly budget to improve your cashflow. Even an extra $50 that was being wasted can add up to over $8,000 in ten years even if it only gets a 6% growth rate. Constantly reviewing your monthly budget with a professional is one of the best ways to ensure you are making all the efficient moves to be on a path for financial success.