Your ability to save will likely provide the foundation for any financial freedom you will achieve in life. The more you sock away and the faster you get started putting money toward your future, the better off you'll be.
Indeed, if you make saving a core part of your financial plan from day one, it almost doesn't matter what returns you achieve, you're bound to wind up much better off than had you not saved at all. With that in mind, here are five great ways you can save more money in 2016.
No. 1: Increase your 401(k) contribution
In 2016, most employees can contribute up to $18,000 into their 401(k) plans, while those aged 50 and up can add an additional $6,000 catch up for a total of $24,000.
- The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government's Thrift Savings Plan remains unchanged at $6,000.
If you're not maxing out your 401(k) plan, increasing your contribution is an awesome way for you to save more money. There are a few key reasons why:
- It's automatic. Once you tell your plan to increase your deductions, the money comes out of your paycheck and gets invested with no further action from you. Make the decision once, and the investments can continue without you needing to actively do it.
- It can save you taxes. If your 401(k) is a traditional style plan, money you contribute comes out before tax, and if it's a Roth style plan, money you take out in retirement can be tax free.
- You don't miss what you never had. Because your 401(k) contribution comes directly out of your paycheck, you never 'see' the money in your checking account. If you don't see it, it's not there to tempt you into spending it.
No. 2: Adopt the envelope spending system
The envelope system is a budget plan where you decide how much you'll spend on each category in a month, and you put that much in cash in envelopes. Then, when you go shopping, you take the relevant envelope with you and spend only from that envelope. Be sure to make 'savings' a category in your budget.
By dealing with only cash, you force yourself to not overspend. That better assures you have the money to put toward all your top priorities, since you have to make small priority calls with each purchase to make sure the money in the envelope covers what you're buying. With your key budget items covered by the envelopes, you're more likely to be able to keep your savings flowing to savings.
No. 3: Snowball your debts
Take every debt you owe (with the possible exception of your mortgage) and line them up in order from highest interest rate to lowest interest rate. On all your debts except the one at the highest interest rate, pay the minimums. On the one with the highest rate, pay every penny you can above and beyond that minimum.
Once that highest rate debt is paid off, add the cash you had been paying to it to what you're paying on the debt you still have that was your second-highest interest rate and is now the highest. Repeat the process until you have no debt left (except possibly your mortgage). Once you've snowballed your way out of debt, all the cash you had been putting toward debt payments gets instantly freed up for savings.
No. 4: Choose less expensive options
Brown bag your lunch instead of eating out. Carpool or take public transportation if it's available. Take advantage of free office coffee or brew your own at home instead of swinging by the local coffee shop. Wear last year's styles instead of the newest fashions. Consider generics instead of name brands whenever feasible, and take advantage of bulk discounts when you can get better per-unit pricing on items you use frequently.
By choosing less expensive options for things you use or do virtually every day, you can increase your savings without drastically affecting your lifestyle. A couple of bucks here and there may not seem like much, but saving $4 a day on coffee, $6 a day on lunch, and $5 a day on commute costs adds up quickly. Over the course of a 250 day work year, that's $3,750 more in your pocket, from those line items alone.
No. 5: Put in a little extra effort
If you're paid hourly, see if you can put in some overtime or work additional shifts. If you're salaried, ask if you can pick up extra responsibilities for some more cash. If neither of those are options, consider a second job or starting freelance work.
If you're able to pick up more hours or more responsibilities at work, it can not only add up to more cash in your pocket, but it can also help your future. If your boss sees you as a dedicated, hardworking employee, it can help you with advancement opportunities.
Go forth and save, and have a prosperous 2016
At the end of the day, your ability to save money depends on both your income and your spending levels. By making small adjustments to both sides of that equation, you can free up more cash to save, which can help you have a more prosperous 2016.
Chuck Saletta has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.