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Get in the habit of saving in the new year

Savings and credit are really opposite sides of the same coin. Think of saving as paying now for something you will buy later. Using credit is paying later for something you buy today. The biggest difference is when the money comes out of your pocket. Money saved comes out of your pocket before the purchase, while money borrowed comes out afterwards.

Credit and savings are both influenced by four things: the amount of money saved or borrowed, the amount of time money is saved or borrowed, the interest rate earned or paid, and the method used for calculating the balance and interest earned or paid.

While the factors are the same, each factor affects you in opposite ways. High interest rates and long periods of time increase the rewards of saving and the cost of using credit. Understanding these factors and how they work will help you to use these important tools more effectively to reach your goals.

Those who achieve financial success often develop a habit of saving at an early age. Beginning with a portion of allowances and perhaps earnings from a paper route or baby sitting, these savers continue to save part of their income throughout their careers. Few activities offer so many rewards as an adequate savings program.

Follow these six rules to become a saver.

Pay yourself first. Before you pay any bills, put money into savings. If you save only what's left over, you're not likely to save very much if at all.

Use automatic payroll deductions. Arrange for a portion of your check to be deposited into a savings account each payday. Check with your employer to find out about these and other automatic savings options.

Save for a reason. It's easier to save with a specific purpose in mind. Each new deposit brings you one step closer to achieving your goal. After a while, interest earned speeds up your progress. Keeping goals in mind helps you to stick to the savings habit.

Start small. Success breeds success. Set a small goal easily accomplished in the near future. While you achieve it, increase your saving for a bigger goal not so easily accomplished.

Save a portion of windfalls and pay raises. When extra money comes in, deposit a portion into savings. You've lived without the money before now, so you won't miss it. A windfall is unexpected money like gifts, prizes and inheritances. Use this extra money to help you reach your goals more quickly.

Be a miser. One day each week, a week every month, or even a month each year, live like Scrooge. Plan meatless meals, free recreational activities and take other economizing measures to reduce family spending. Buy only what you need and put the money you don't spend into savings.



Web posted on Thursday, January 13, 2005











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