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How to Start Saving Money

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any credit card issuer. This site may be compensated through a credit card issuer partnership.

Faced with an unexpected expense, like a car repair or leaky roof, many Americans might not have enough money in the bank to cover the bill. Just over half of U.S. households currently have a savings account, and 29% of households have less than $1,000 saved, according to a MagnifyMoney survey.

Whether putting money away for a rainy day or retirement, good savings habits can prepare you for emergencies and life changes. There are countless ways to build up your savings, from finding ways to cut back on spending to looking for areas where you might be overpaying. The time and discipline you invest implementing them will pay off — quite literally.

How can I start saving money?

If you’re just starting out on the path of building your savings, small changes can add up over time. A review of your budget should uncover items that can deliver larger, immediate gains. Here are more than two dozen money-saving strategies you can adopt for the short-term and the long-term.

Tips for saving money today

1. Set an intention
According to Sergio G. Garcia, associate planner for Quest Capital Management in Dallas, Texas, “saving money is tied to behavior and psychology, so it is important to find a personal focus to drive the savings behavior that works best for you.” Write down the reasons you want to save money, such as buying a house or retiring early, and put it in a place you’ll see every day.

2. Save your spare change
Collect your spare change at the end of the day and put it into a jar — you’ll be surprised at how quickly it can add up. If you use a debit card, some banks, like Bank of America, offer round-up savings plans, automatically moving the change into your savings account. For example, if you spend $19.50, the program will round-up your purchase to $20 and move $0.50 into your savings account.

3. Get a micro-saving app
Similar to saving spare change, you can also link your bank account to a money-saving app that does the savings for you. For example, Acorns automatically rounds up your purchase and moves the change into an investment account.

4. Cut the excess
To save money, you need to know where you’re currently spending it, suggested Matthew Gaffey, senior wealth manager for Corbett Road Investment Management in McLean, Va.: “List and monitor all of your expenses to get a full picture of how much you’re spending and where.” Money management habits will typically shed some light on a few areas that you could reduce or cut, such as unused magazine subscriptions or gym memberships.

5. Adopt a waiting period
The ease of online shopping can be brutal to your budget. Instead of falling for the impulse to make a purchase on the spot, implement a wait policy, such as 24 or 48 hours. You might realize you can live without that item you’re craving.

6. Don’t fall for a “great deal”
It’s hard to resist the lure of a good bargain. But saving 50%, 75% or even 90% isn’t a good deal if you don’t really need it. Instead of focusing on the discount, consider the amount you’re spending and how much you’ll really use the item.

7. Use a cash-back credit card
Some credit cards offer as much as 5% cash back in certain categories, which can add up. For example, the Chase Freedom® offers bonus categories each quarter – Earn 5% cash back on up to $1,500 in combined purchases in bonus categories each quarter you activate. Enjoy new 5% categories every 3 months. Unlimited 1% cash back on all other purchases. If you spend the full $1,500 each quarter in the bonus categories you could earn $300 cash back a year. If you were going to make these purchases anyway, this is a good way to save money.

The information related to Chase Freedom® has been collected by MagnifyMoney and has not been reviewed or provided by the issuer of this card prior to publication. Terms apply.

8. Find rebates
Before making an online purchase, check cash-back sites like Mr. Rebates or Ibotta and see if the store offers a rebate if you click through the site. You could earn a set cash-back amount or a percentage on a purchase.

Ways to start saving money every month

1. Automate monthly savings
Sign up for automatic savings withdrawals. “Direct deposit from a paycheck is great because then it happens automatically and you don’t even have to think about it,” said Amy Shepard, financial planning analyst at Sensible Money in Phoenix. In addition, she advised, “set reminders to increase your savings periodically, such as every six months or every time you get a raise.”

2. Create specific savings goals
Save for big things, like a vacation or kitchen renovation, by using a bank that allows you to set up separate savings accounts for different goals, said Bethany Griffith, senior financial advisor and partner at Abacus Planning Group in Columbia, S.C. “It can be a great way to jump start savings,” Griffith said. “The visual check-in each time you look at your accounts is a powerful driver for changing behavior.”

3. Do a 52-week money challenge
With the 52-week money challenge, you save more every week, and see clearly how savings can add up over the course of a year. Create a weekly savings challenge by saving $1 on the first week, $2 on the second week and continue until you’re saving $52 on the final week of the challenge. In a year you’ll have saved $1,378, not including interest.

4. Create a weekly meal plan
The average American household spends more than $3,400 a year on meals away from home. You’ll be less likely to eat out or order in if you’ve planned your meals for the week. Having a meal plan also helps you create a grocery list to avoid impulse purchases or food that goes uneaten.

5. Review your monthly bills
It’s irritating when your cable or cell phone bill goes up, but that extra $5 or $10 a month can add up to $60 or $120 over the course of a year. Pay attention to your monthly bills. If you see an increase, call and ask why. If you’ve been a customer for a long time, companies will often lower the rate instead of risk losing you.

6. Pay down debt
Americans pay $113 billion in credit card interest each year. If you’re among those that carry a balance, you can get an immediate return on your money by paying it down and eliminating it.

7. Adjust the thermostat
Save as much as 10% a year on heating and cooling by adjusting your thermostat seven to 10 degrees from its normal setting for eight hours a day. This can be while you’re at work or while you’re sleeping — or both, for even more savings. A programmable thermostat can do the work for you, easily paying for itself.

8. Use a price-drop refund app
Several retailers will give you money back if an item you bought goes on sale, but tracking that can be a chore. Use an app like Earny to do the tracking for you automatically. The app also takes care of the claim — Earny claims it saves the average user $75 each year.

Start saving money over the long term

1. Annualize your spending
A latte or vending machine habit might seem harmless, but when you multiply that daily expenditure by five days a week and 50 weeks a year (assuming you take a two-week vacation), it can add up to a substantial sum — one that might not seem worth it when you annualize your spending. Try this with your regular discretionary spending and see what you could do without.

2. Review your insurance
Make a habit to review your property and auto insurance each year. Jeffrey N. Tomaneng, director of financial planning for Sapers & Wallack in Newton, Mass., recently had an agent audit his policies and made changes to save $2,100 a year in premiums — “within a few days we were off to some much needed household savings,” he said.

3. Sell your stuff
The average American has 42 items in their home they no longer use worth an estimated $723. Sell them! Hold an annual garage sale, or list your items on eBay, Mercari or Facebook Marketplace. Someone else can use and enjoy them and you can pocket the money.

4. Shop around for higher interest rates
Your bank savings account may be conveniently attached to your checking, but if the interest rate is negligible you could be leaving money on the table. Look for higher interest-rate savings accounts that can help you build your balance.

5. Review your withholdings
Each year, review your benefits and withholdings and ensure you’re taking advantage of the benefits your company offers, such as flexible spending accounts or matching retirement. If you get a refund each year after tax season, consider adjusting your exemption amounts and stop giving the government an interest-free loan on your own money.

6. Look for discounts
If you’re a member of a professional or alumni association, you may get discounts on business services, insurance or travel. Make a point to review your benefits each year, and use them to find the best deals.

7. Review your credit card benefits
Before you buy that extended warranty or insurance on your rental car, check and see if the credit card you’re using offers it for free as a benefit of being a cardholder. You can save hundreds of dollars by knowing what you’re already offered.

8. Check your credit report
Each year you should order a copy of your credit report to make sure it’s accurate; you may find a discrepancy that could hurt your chances of getting better interest rates on a loan. You’re entitled to a free report each year from each of the reporting agencies, which you can obtain from AnnualCreditReport.com.

Bottom line

Developing any new habit requires behavior changes — changes that can be uncomfortable at first. But getting into the habit of saving money is worth it. Building a nest egg can provide peace of mind. Once you start seeing your balances grow, the numbers will give you the motivation you need to keep going and keep saving.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Stephanie Vozza
Stephanie Vozza |

Stephanie Vozza is a writer at MagnifyMoney. You can email Stephanie here

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Banking

What Is the Fed Beige Book and How Is It Used?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Recent financial news reports have noted that despite looming concerns about a trade war with China, the U.S. economy expanded modestly from June through August 2019. In fact, many businesses remain optimistic.

Ever wondered how this information is collected and measured? The Federal Reserve gathers commentary and measures the performance of the economy using a tool called the Fed Beige Book. Here’s what you need to know about the Beige Book, including how it affects the Fed’s decisions — and you.

What is the Fed Beige Book?

Created in 1983, the Fed Beige Book is a Federal Reserve System publication that is released eight times a year to provide detailed information about the current state of the economy. It is compiled by the 12 regional Federal Reserve Banks:

Each of these regional Federal Reserve banks gathers information on its district by conducting surveys with local businesses, community organizations, economists, market experts and other sources. The questions don’t ask for specific numbers; instead, they gather anecdotal information about trends, business activity, hiring and economic improvements or declines.

The Fed Beige Book includes the 12 district summaries as well as an overall national summary, characterizing conditions based on a variety of mostly qualitative data. The information gathered relays the pace of the economy at the local level, as well as the impact of national and global trends. The national summary covers three core topics: overall economic activity, employment and wages, and prices. Each district also includes topics or industry-specific reports related to their location.

The information compiled in the Fed Beige Book is divided into seven sections by economic sector:

  • Consumer spending and tourism
  • Nonfinancial services
  • Real estate and construction
  • Manufacturing and other business activities
  • Banking and finance
  • Agriculture and natural resources
  • Employment, wages and prices

The Fed Beige Book’s qualitative nature helps characterize regional economic dynamics, as well as noting trends that might not yet be quantified in the economic data. It’s used to complement statistical data collected on employment, unemployment, personal income, retail sales and real estate markets to provide a more complete picture.

How does the Federal Reserve use the Fed Beige Book?

The Fed Beige Book is given to the 12 members of the Federal Open Market Committee (FOMC) two weeks prior to their regular meetings. The group gathers eight times a year with three tasks contemplate: reviewing economic and financial conditions, determining appropriate monetary policy and assessing the risks to its long-term goals, price stability and sustainable economic growth.

The Beige Book provides information about the sectors and industries that are growing and those that are lagging — it’s especially important because many key regional economic statistics, like personal income and gross state product, only get released after experiencing a significant lag.

The FOMC uses the Beige Book to make decisions that include adjustments to the fed funds rate, the interest rate at which a bank lends funds held at the Federal Reserve to another bank overnight. Effective monetary policies by the FOMC can help stabilize prices and promote long-term economic growth and employment.

The Fed Beige Book is one of two reports the FOMC receives. The Fed Tealbook — officially called the “Report to the FOMC on Economic Conditions and Monetary Policy” — was created when two previously-distributed reports, the Bluebook and the Greenbook, were merged in 2010. The Tealbook is split into two parts: Part A contains analysis of current economic and financial conditions and projections (nationally and internationally), while Part B gives background and context on monetary policy alternatives.

How the Beige Book affects you

The Fed controls the three important monetary policies: Open market operations, the discount rate and bank reserve requirements. In particular, the FOMC is responsible for open market operations, which include adjusting the federal funds rate and the supply of cash reserves.

Changing the federal funds rate can impact short-term interest rates, foreign exchange rates, long-term interest rates and the amount of money and credit available. Those, in turn, can impact employment, output and the prices of goods and services.

A Fed Beige Book report that the economy is slowing down or stagnant could lead the FOMC to cut the federal funds rate, which can impact you in two ways. First, it can reduce the amount of interest you earn from savings and other deposit account types; banks will often lower rates within a few weeks of a funds rate cut. The second way provides a potential upside, as it can lower the interest you are charged on credit cards and for new mortgages. Most major credit card issuers lower their APRs after the Fed reduces rates, usually within one or two billing cycles. In addition, a lower federal funds rate can impact an adjustable-rate mortgage and HELOC, as they’re based on short-term rates.

The FOMC may also decide to increase the money supply in a slow economy to spur economic growth. The idea is that with more money available, businesses may choose to invest and hire more, which could mean more jobs are available.

If the Beige Book reports that is inflation high, the FOMC may decide to raise interest rates or reduce the money supply. These actions would have the opposite impact: you might pay a higher rate for a loan (especially those with adjustable rates), credit card interest rates rise and businesses may invest less, which can result in fewer job opportunities.

Beige Book FAQ

The Beige Book’s official name is “The Summary of Commentary on Current Economic Conditions by Federal Reserve District,” though its nickname comes from its beige cover.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Stephanie Vozza
Stephanie Vozza |

Stephanie Vozza is a writer at MagnifyMoney. You can email Stephanie here

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Banking

What Is the SECURE Act and How Could It Impact You?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Americans may look forward to retiring, but many aren’t prepared. MagnifyMoney’s latest study on retirement found that only 47% of respondents are happy with the amount of money they’ve saved for retirement, and 60% don’t know exactly how much they’ve put away.

A bill that’s currently making its way through Congress is designed to help Americans build their nest egg. It’s called the SECURE Act — which stands for Setting Every Community Up for Retirement Enhancement — and it includes several provisions that would provide new ways and motivations for saving for retirement.

What is the SECURE Act?

The SECURE Act was introduced to the House of Representatives on March 29, 2019 by Rep. Richard Neal of Massachusetts to amend the Internal Revenue Code of 1986 and encourage retirement savings.

While Americans’ savings habits are certainly concerning, the Bureau of Labor and Statistics’ latest Employee Benefits Survey found that 32% of workers don’t even have access to a retirement savings plan. If the SECURE Act is passed into law, it will address the challenge by:

  • Creating opportunities for part-time workers to contribute to 401(k) retirement plans
  • Extending the amount of time that individuals can contribute to traditional IRAs
  • Increasing the required minimum distribution (RMD) age for retirement funds
  • Giving tax credits to businesses that automatically enroll employees in retirement savings plans

The provisions are designed to increase the availability of workplace retirement savings plans.
Additionally, the act also attempts to address the fact that people are living and working longer, and the impact that can have on when someone retires and the amount they have in savings. Human lifespans are increasing by approximately three years each generation, and biologists predict that the trend is likely to continue. And since 1996, the rate of retirement-age Americans (those aged 65 to 74) who are in the workforce has steadily increased. The Bureau of Labor Statistics projects that it will climb to 30.2% in 2026, compared with 17.5% in 1996.

How the SECURE Act could impact your retirement

From creating more opportunities to save to providing incentives to businesses that set up and encourage retirement planning, the SECURE Act could impact your own retirement options and balances in several distinct ways.

1. Part-time workers would have more opportunities to save

Part-time employees who don’t work at least 1,000 hours a year currently can be excluded from an employer’s 401(k) plan. This will change if the SECURE Act is passed.

Under the proposed legislation, employers must allow part-time employees that have been at the company for at least three consecutive years and work at least 500 hours a year an opportunity to participate in its 401(k) plan.

2. Older Americans could contribute to traditional IRA accounts for longer

Under current law, Americans can no longer contribute to a traditional IRA after they turn 70 1/2, even though several continue to work beyond this age. The SECURE Act would remove this limitation by repealing the age limit. This would mean that Americans could continue to save money for retirement as long as they choose.

3. Americans could let their retirement savings grow a little longer

Current law requires individuals to start withdrawing money from their retirement accounts once they reach the age of 70 1/2. Under the SECURE Act, the RMD age would change to 72. If the account holder doesn’t need the money right away, it could be left untouched to grow and potentially provide a significant boost to their overall retirement savings.

“The expansion of the RMD to 72 can add about 12% to an IRA balance at age 72 and increase the residual value of an IRA by about 8% at age 85, using 6% and RMD withdrawal,” said Leon C. LaBrecque, chief growth officer of Sequoia Financial Group in Troy, Mich.

4. New savings products would be offered in employee 401(k) plans

Many 401(k) providers avoid offering in-plan annuities to employees, in part due to concerns about liabilities. The SECURE Act, however, would protect employers by taking away some of the associated legal risks, potentially opening a new savings option to employees.

Annuities provide guaranteed payments over a period of time in exchange for an upfront, lump-sum payment. In retirement, these payments can act as a fixed stream of income over your lifetime, helping to prevent a person from outliving their savings.

“In principle, this could be wonderful, if the bills permitted only true annuities — that is, investments that pay a guaranteed, fixed sum of money each year — and if the fees they charged savers were kept in check,” said Nancy Hite, founder of the Strategic Wealth Advisor in Boca Raton, Fla. “Unfortunately, neither is the case. Currently, 401(k) providers are shielded from liability. If annuities are used they should only be low-priced and not complicated, which might limit the option to fixed annuities.”

5. Small businesses could access lower-cost 401(k) plans to offer to employees

Traditional 401(k) plans can be costly to set up, ranging from $5,000 to $10,000 each year in administrative fees and not including initial set-up fees, which is likely why many small companies don’t offer them. This puts the burden of researching and enrolling in a plan solely on the employee, which can result in fewer people following through.

The SECURE Act would make it easier for small businesses to offer plans by allowing them to join multi-employer plans with the same trustee, fiduciary, administrator, plan year and investment options. Unrelated businesses could leverage the power of scale and reduce their administrative costs.

In addition, the SECURE Act would increase the tax credit given to small businesses for starting a new 401(k) program for its employees to $500, to help offset the fees.

6. Small businesses could automatically enroll employees to encourage savings

The SECURE Act provides another tax credit of $500 to employers that create a safe harbor retirement plan — a type of 401(k) plan that is not subject to IRS nondiscrimination tests —
and automatically enroll employees. While workers could choose to opt out, automatic enrollment boosts participation and encourages workers to save for retirement.

Small businesses that already have a retirement plan would also be eligible for the tax credit if they convert their existing plan to one with auto-enrollment.

7. Automatic enrollment caps would increase to encourage higher saving

In addition to giving employers an incentive to automatically enroll workers in retirement plans, the SECURE Act would raise the cap on automatic increases from 10% to 15% of employee wages for safe harbor plans, which require employers to make a matching contribution. Employees can adjust the enrollment and choose a different contribution rate.

8. Retirement statements would have income stream disclosures

Retirement plan statements currently provide an account balance, but that doesn’t give people the full picture. You need to know how long it will last. The MagnifyMoney retirement study found that 27% of people have never thought about how much money they’ll need.

The SECURE Act will provide some help and context by requiring that contribution plans deliver a lifetime income disclosure to participants at least once every 12 months. The disclosure would show how much income the current lump sum balance in the account could generate. This would provide a reality check on how much money an account holder has, and how it would stretch over their estimated lifetime. If the amount is low, it could spur people to save more to reach income goals.

9. Some types of access to 401(k) funds would be limited

Each year, 11 million Americans take a loan against their 401(k) plan. Currently, you can borrow up to 50% of your balance, up to $50,000. Some 401(k) administrators allow employees to access loans through credit card arrangements.

The SECURE Act would end this practice, preventing easy access to retirement funds for routine or small purchases that could deplete savings over time.

Where things stand with the SECURE Act

The SECURE Act was passed in the House on May 23, 2019 by an overwhelming majority of 417-3. It was moved to the Senate on June 3, 2019, where it sits awaiting a vote.

“Sen. McConnell has hotlined the bill for unanimous consent,” LaBrecque said. “Sen. Cruz has objected to the House’s removal of 529 withdrawal for home-schooling expenses. We anticipate this will be resolved without a floor debate. However, bipartisan passage seems very likely.”

Edward Jasterm, a Certified Financial Planner and director of financial planning for Heritage Financial Services in Westwood, Mass., is more cautious in his outlook. “Although the Act has bipartisan support, it is not certain it will become law,” he said. “The Senate is in recess through Sept. 6, and has critical spending legislation to address in the short-term. If the SECURE Act can be tacked onto another bill, it is possible it could be voted on and moved forward. Proponents of the bill are working on that strategy to try to keep it alive in the Senate.”

The Senate has its own version of the SECURE Act, called Retirement Enhancement and Savings Act (RESA). The bill failed to pass in the last Congress that closed without taking final action. It was reintroduced with some technical modifications, including an exception to the required minimum distribution rules upon death of an IRA owner, and the deletion of a section that provided for an acceleration of Pension Benefits Guaranty Corporation premiums.

The Senate Finance Committee will either reconcile the two acts into a final version or choose to move forward with the SECURE Act. If the Senate does pass it and the president signs it, the law could be effective as soon as next year, LaBrecque said.

The bottom line

While the fate of the SECURE Act is being decided, it’s a good idea to review your current retirement plan and projected distribution during retirement, and determine if you need to find a strategy to increase your contributions. Since the legislation could create new options for retirement savings, it’s also important to educate yourself on those new options to choose the plan that’s right for your situation.

“A lot of people are not understanding that the tax rates are going to revert back higher in 2025 for most of us,” LaBrecque said. “Then the RMD math makes our tax rates higher as we get older. And then mortality makes us single, which makes our tax rates higher yet. We’re going to want to think about how we save for retirement.”

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

Stephanie Vozza
Stephanie Vozza |

Stephanie Vozza is a writer at MagnifyMoney. You can email Stephanie here