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Five Easy Ways to Build Your Cash Reserve
To prepare for emergencies and to take advantage of new investment opportunities, you will need to save up enough money to cover at six to twelve month’s worth of living expenses. And even more if you are considering a large purchase such as a house, car or business.
Here are five quick BARON tips that can help you easily build up a cash reserve on even the tightest of budgets.
- Commit to save your overtime pay, holiday pay, and the extra earnings from any months where you have three paychecks. Most people won’t miss the extra income and this can quickly add up to several thousand dollars in savings by year-end.
- “Pay yourself first” with automatic deductions. You can elect to have a designated amount of money automatically deducted from your paycheck or bank account and deposited into a high-yield savings or money market account. Even if you are only able to set-aside a small amount of money such as $50 per month, it can have a huge compounding effect, as the $600 you’ll save a year will enable you to raise your insurance deductibles and save more money by lowering premium payments.
- Save the money from consolidating your long-term debt, doing comparison shopping, purchasing consolidated services, and doing better planning to reduce late fees and penalty fees. While some things may take a bit of discipline, the financial results will be well worth the effort.
- Save your year-end bonus. Whether your bonus is $500 or $15,000, you would be wise allocate it toward your reducing your debt and increasing your savings. As bonuses are usually the largest windfall of cash for individuals throughout the year, they provide the most significant way to jump start your savings.
- Save your tax refund. With tax refunds averaging about $2,500, they are another significant windfall of cash that can move you rapidly toward your savings goal. If you routinely receive large refunds, you can work with your accountant to make adjustments to your withholdings, so that you can get access to your money throughout the year to put into a high-interest bearing account. On top of your refund, the interest you accrue will add a few hundred dollars to your account.
With these strategies, you can painlessly save several hundred to several thousand dollars a year, even if you are currently living paycheck-to-paycheck. And most importantly, these strategies help you to develop sound financial habits that will not only allow you to achieve your smaller savings goals, but also your six-figure or million-dollar investing goals.