It might not seem like a lot, but if you save $5,000 a year for 40 years beginning at the age of 25, by the time you reach 65, you would have $200,000 -- that is if you put that money under your mattress. If you invest your savings, you will have more, depending on how much your investment paid off. Growing $5,000 a year to $1 million is surely doable if you have time on your side.
Track Your Spending
Before you can begin to save $5,000 a year, you need to be aware of your spending. Track where your money goes for at least a month. If you don’t know where your money is going, you will be unable to effectively save, says Tracy East on the website MSN Money. You should include housing, utilities, groceries, clothing, transportation and entertainment. Include every dime you spend, down to the last macchiato. After the month is up, evaluate your spending to determine which areas you can cut.
Telephone and Cable
Cut telephone and cable television services. If you have a landline and a cellphone, eliminate one. Cable TV is a big expense that you do not necessarily need. You can stream TV shows off the Internet, usually free. You can also rent movies cheaply, typically for $1, at many grocery stores. You can typically save more than $1,000 a year by cutting your phone and cable.
Food is an area where many people overspend because of eating out. If you took your lunch to work or came home for lunch, you would typically spend $5 instead of $10 a day. You can save more than $1,000 a year just by making this one change. You can save another $1,000 a year by buying generic or store brand items at the grocery store and by switching from soda or bottled water to tap water. Making a shopping list and sticking to it can save an additional $1,000. Grocery store shoppers who don’t impulse buy save an average of 23 percent, which amounts to about $1,000 in a year, according to Kristin van Ogtrop, managing editor of Real Simple magazine.
Compare car insurance rates. Many people become complacent about their car insurance and don’t realize they could be paying less. What was a good deal at one time might not be the best deal you could get today. It could be worth up to $750 a year to change insurance companies, according to MSN Money.
Another way to save doesn’t involve cutting expenses at all. Set up automatic deductions from your paycheck to a bank account. If you can afford to have about $400 deducted from your paycheck once a month (or $200 every two weeks), you don’t need to do anything else to save close to $5,000 a year. If you never see that money, you could learn to live without it.
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