Here are some strategies to help maximize your cash flow, cut major expenses and quickly build your savings and retirement accounts.
Stop Getting a Tax Refund
The average U.S. taxpayer receives a $3,000 refund come tax time -- that's essentially money that you've loaned to the government for free when it could have gone to your interest-building savings account.
If you get a big refund regularly or expect to have many tax-altering events this year, ask for a W-4 form from your workplace and claim more allowances (the IRS has a great allowance calculator that you can use).
Think about what may be different this year to know what kind of tax credits you'll likely claim next time around. Will you be contributing more to your retirement account? You may qualify for the IRS saver's credit. Will you be going back to school to get a degree? Figure in a possible lifetime learning credit or hope credit. Don't forget about the homeowner's deductions. The more credits and deductions you expect to claim, the higher number of allowances you should put on your W-4.
You may work with a CPA or financial planner if you don't have time to crunch the numbers. But if you do have time and have a bit of savings in case you owe the IRS the next time you file, go ahead and be a little less conservative with the allowances you claim. The goal is to shrink your refund, grow your paycheck and put the extra cash into something that will make your money work for you.
Assuming you claimed the proper number of allowances, you could get up to $250 more per month ($3,000 cut into 12 months) to put towards retirement or an emergency fund.
Reward Yourself With Your Credit Card
If you trust yourself with a credit card and can pay off your balance each month, find a credit card that has cash-back rewards and no annual fee. Some credit cards give 1% to 3% or more cash back on every purchase.
When you accumulate enough points or cash back on the card, you can redeem your reward via check or credit towards your card's balance. Use your credit card on every necessity that comes your way, including rent if your apartment complex allows it.
Treat your card purchases like cash and refrain from accumulating a balance greater than what you have in your bank account at the time. The idea is to utilize the rewards, not put yourself into a bad financial position that you can't get out of.
If you responsibly used this technique, every $10,000 of money charged on the card can reward you $100 to $300. That's more than some savings accounts offer, and without having to change your spending habits.
Related: How to Choose the Best Credit Card
Food Shopping and Brown Bagging
At the grocery store, try to stay on the perimeter where the non-packaged foods are. Produce, meat, bread, milk, eggs and juice are great sources of nutrients for meals and can be relatively inexpensive. When you do buy packaged foods, try and purchase less expensive generic brands when possible.
If you want to go a step further, make a resolution to pack your lunch every day. Don't have time in the morning? Make lunch the night before and put it in the fridge so you can quickly grab it the next day before work. If a typical lunch out costs you about $12, a brown bag lunch, which may cost $4, will save you up roughly $8 each work day. That's more than $2,000 a year that you could use instead to contribute to a 401k or Roth IRA, for example.
Make Your Home and Auto More Efficient
Want to seriously start cutting your electric bill but don't want to purchase expensive, high-end appliances to do it? Begin with your thermostat. According to the U.S. Department of Energy, 56% of your home's energy use is from air conditioning and heating. Setting your thermostat back 10 to 15 degrees while you're at work or school can save you up to 15% on your yearly heating or cooling bill.
Lighting costs, which make up 15% of your electric bill, can be reduced up to 75% using high-efficiency LED bulbs. Also, try unplugging the coffee maker, computer and entertainment systems while not in use; electronics account for 20% of your electric bill, and the constant ghost usage can be quietly adding to your bill even if the appliances are not in use. Altogether, you could save over 25% on your electric bill. If your household spends the average $1,400 annually on electricity, that's a savings of $350 a year.
Buying a used car and keeping your vehicle longer are great ways to save thousands in the long run. But with high gasoline prices, it's also important to watch your driving habits to minimize your fuel costs. Driving less aggressively with slower acceleration, following the speed limit and slower braking can help you save between 5% to 35% in fuel costs and prevent expensive repairs. Fueleconomy.gov explains through their tests that following good driving habits can save the average driver 20% off overall fuel costs, or about $400 a year.
[InvestingAnswers Feature: Nine Ways to Save Thousands on Car Expenses]
The Investing Answer: Saving money and building your wealth effectively takes discipline and time. But if you live frugally and keep socking away the extra money you save from these tips, you'll thank yourself down the road.
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