1. Track your spending"You can't save money if you don't know where you are spending it," cautions Botkin. But, in about 20 minutes, you can set up a free online budget tracking service. Once you see how and where you are spending your money, decide which expenses are absolutely necessary (needs) and which are not (wants) -- a very important distinction, says Botkin. Choose the expenses most important to you and make a conscious decision today to cut the rest. "You really can have anything you want -- just not all at once," says Botkin.
2. Start the saving process via automatic transfersIf you live paycheck to paycheck and have little or no cash savings, start building a cash emergency fund to protect you from turning to credit cards or payday loans when unforeseen payments, bills or emergencies hit, says Botkin. Saving money takes willpower. Another 2012 APA study found that while financial resolutions were second only to weight-loss goals among Americans, lack of willpower was one of the major barriers to achieving those goals.
Botkin says to avoid choice in the matter all together."Do what the government does with taxes and deduct your emergency cash savings from your paycheck automatically before you get it," he says. You can accomplish this today by simply changing your paycheck direct deposit deductions to funnel 5 to 10 percent of every paycheck into a savings account for emergencies. To get the most from your fund, you'll want find the best savings account interest rates available, but Botkin says the most important thing is to simply park your emergency cash in any FDIC-insured savings, checking or money market account that offers immediate access when you need it.
3. Plan an attack on debtIf you are ready to get rid of credit card debt, spend an hour collecting your credit card statements today and create what Botkin calls, "The Matrix of Debt," a simple chart that lays out your debt repayment plan:
- List your creditors from smallest to largest total amount of debt.
- Next to each, list the total amount due, the interest rate, the minimum payment and the duration to satisfy each debt.
- Start paying more toward the smallest debt first by applying any savings (found by tracking your expenses, above) plus the minimum payment every month until satisfied. Keep paying minimums on all other debts.
- Once a debt is paid off, apply that monthly savings amount -- which should be larger in the absence of the minimum payment from the first debt -- to the next smallest debt's minimum payment.
4. Make a commitment to your retirementBotkin says that saving for retirement becomes important once you have an emergency cash cushion and credit card debt is satisfied. That's because credit card interest rates are typically between 12 and 20 percent while retirement investment vehicles earn just a fraction of that.
"Once you are free of credit card debt, apply that money to retirement savings the same way as the emergency fund savings ... automatically," advises Botkin. Set up another paycheck deduction that goes straight to an IRA, 401(k) or pension account.Botkin says that any windfall (tax refund, bonus, etc.) or extra money found from cutting expenses or paying off a car, credit card or mortgage, should be deposited in retirement accounts as early in the year as possible, instead of waiting until December to make a contribution. The earlier and the more you deposit, the more the magic of compound interest adds to your balance.
5. Establish guards against scams"Be vigilant in protecting your personal information from scammers," says Botkin. "I advise keeping tabs on your credit report monthly for a fee (instead of the free service once per year, or even every three months) via a reputable credit report monitoring service." Taking a few minutes to address these tasks may also help protect you:
- Install a pass code on your phone to protect your personal information should the phone get lost or stolen.
- Tear up and shred any pre-approved credit applications you get in the mail.
- Check every bill or statement for unauthorized charges and fees.
- Never click on any links in emails from financial institutions. Always call the institution or log-on to your account directly.
- Never give out your personal information in public or on a public computer.