There are plenty of savings strategies that can get your finances on the right foot. Maybe you’re ready to jump start your retirement or start saving up for a house. Regardless of your plans, coming up with a savings plan can help you reach goals sooner rather than later. Unfortunately, not all savings strategies pan out. And if you're not careful, there's a chance that your savings plan might backfire.
1. Interest-free Credit Cards
You might apply for a 0% interest credit card to save on interest and pay off your credit card debt sooner. This is one of the best savings strategies for tackling credit card debt since you can transfer balances to the new card and enjoy a 0% introductory rate for at least 12 months. This strategy can work, but only if you pay off the card before the introductory rate period ends, and if you don’t add new charges. If not, you’ll deal with interest charges once the regular APR kicks in.
2. Adjustable Rate Mortgages
The interest rate on an adjustable rate mortgage is typically cheaper than the rate on a fixed rate mortgage. Therefore, if you’re looking to score the best mortgage rate on your home, an adjustable rate can work. However, ARMs only have a fixed rate for the first one to five years. Afterwards, the rate adjusts annually based on the market. Getting an ARM might save you money today, but a potentially higher rate in the future can result in a higher mortgage payment.
3. Low-premium Health Insurance
There is nothing cheap about health insurance, and if you’re searching for insurance for yourself or family, you might be tempted to select a policy with the cheapest premium. Although the lowest premium is easy on your pocket, this policy might not meet your healthcare needs, and you could end up paying more out-of-pocket in the long haul.
4. Leasing a Car
If you like driving a new car every two or three years, leasing a vehicle might be the way to go. This is often cheaper than buying — that’s if you don’t get hit with extra charges when you return the vehicle. When leasing a car, you're only allowed to drive a certain amount of miles per year. And if you go over your mileage, you'll pay between $0.10 and $0.15 per mile.
5. Relying on a Regular Savings Account
The national average rate for savings accounts is 0.08% APY. But given how many bank savings accounts only pay 0.01% APY, keeping your cash in a regular savings account isn't going to grow your money fast. The fact that you're saving is commendable. However, to reach savings goals faster, you need an account that pays a higher rate, such as a certificate of deposit, money market account or an online high-yield savings account.
6. Clipping Coupons
Going through the newspaper and clipping coupons before grocery shopping is an excellent way to knock dollars off your total bill. However, to benefit from couponing, it's important that you only buy the things you need. Purchasing something just because you have a coupon isn't going to help you save money. If anything, it’ll increase your grocery bill.
7. Buying in Bulk
If you do the math, buying in bulk might be cheaper than buying individual items. However, it’s only cost-effective if you actually need multiple counts of a particular item, and if you’re able to go through your supply before it expires.
A good savings strategy is an important aspect of financial planning. Understandably, saving money isn't the easiest thing to do. But with your goals in mind and an effective, doable plan, you’ll quickly get into the routine.
What are your best savings strategies?