This is the fifth installment of my review of Suze Orman’s The Money Book for the Young, Fabulous & Broke. The previous installment, Making the Grade on Student Debt, covered paying back student loans.
One of the strongest statements Orman makes in her fifth chapter, “Save Up” is the following: “Success is not solely about making more money. It is about knowing where the money you make is going.” But Orman doesn’t go the traditional budget route, she instead suggests some reasonable changes her readers can make in order to free up some cash to deposit into an emergency savings fund, build up a Roth IRA, or pay off debts. Here are her suggestions:
Stop getting an income tax refund. It’s great to get a big, fat refund back every year, except for the fact that the government was holding that money for a whole year interest free! Change your withholding so less money is taken out of your paycheck, thus increasing your take home pay. The key here is not to have so little taken out that you owe money. Find the right balance by calling up your human resources department.
Do not have a life insurance plan if you don’t have any dependents.
Raise your car insurance deductible, thus lowering your annual premium. If you go for a low deductible and make multiple claims, your insurer will raise your premium anyway or outright cancel your policy. If need be, Orman recommends charging any deductibles on a low interest credit card.
Get rid of your land line if you have a cell phone.
Take a gander at your bank statements. Look for any errors, ATM fees, or bounced checks. Switch banks if there are too many fees.
Balance your checkbook. Do not guesstimate about having enough money for the checks your write or the withdrawals you make. Know that you have the money, everytime.
Check your credit card statements for errors. If anything doesn’t look right, give your credit card company and or the business you patronized a call and get the scoop.
The following are small changes that affect your lifestyle more, but are still completely doable:
-Wait an extra week or two to get your next haircut/manicure
-Use the dry cleaner less often
-Drink more economically- go for a glass of beer or wine instead of the $10 martinis. You can also change to a different bar that offers cheaper drinks.
-Pack lunches at least a few times a week
-Use public transportation if you live in a metropolitan area
-Cut down on expensive sport equipment by buying used or off season
-Go out to the movies less
-Get a roommate to help pay for rent and utilities
-Don’t live in a trendy neighborhood where rent is sky high
-Keep your car for a couple of extra years instead of getting a new one as soon as you pay off your current car
Orman recommends paying off your credit card before focusing on saving if the interest rate on your credit card is more than the interest rate on your savings account.
Be sure to either set up an emergency savings fund that will cover six to eight months of expenses or to have a credit card with a credit limit that will cover the same (if you’re too strapped for the emergency fund).
When debating over contributing to your 401(k) or your savings account, Orman says go for the 401(k) before the savings account if your company matches your contributions.
One last bit of wisdom Orman shares: savings is for short term goals (up to about 5 years), investing is for long term savings goals (beyond 5 years). Sock your money away accordingly.
I already do a good many of Orman’s savings suggestions, plus a bunch of my own. After reading this chapter, I plan on looking into my tax withholding to see if I can find the right balance so Uncle Sam isn’t holding so much of my money and changing my car insurance deductibles so my rate isn’t as high. I also want to go over these points with Jake to see if there’s anything that he’s willing to change in order to save some money- fingers crossed!
Next up for my Money Book for YF&B review is planning for retirement.
20saver 