This article will outline three uncommon money-saving tips for new parents, young families, and anyone who is looking for ways to save in addition to the usual advice about budgeting, coupon-cutting, and buying on sale, from the office of noted Philadelphia bankruptcy lawyer David Offen.
Pay Off Credit Cards Each Month
How does this save money? First, you won’t be paying the exorbitant interest rate that credit card lenders charge on revolving balances.
Second, using a credit card responsibly is the easiest way for young adults to build good credit. In turn, having good credit saves you money on car loans and mortgages because you will be offered a lower interest rate than if you had poor or no credit.
Get a credit card or two with no annual fee and with some sort of rewards program such as points, cash-back, or airline miles. Use your credit cards to pay for things like baby supplies, gas, and groceries – things that you would usually pay cash for. Then pay the balance in full each month. This way you get all the perks and convenience of using a credit card and none of the financial penalties.
Save for Financial Emergencies
This may seem difficult considering all of the expenses a new family has, but it is less expensive to save for financial emergencies than it is to have to rely on credit cards to fund emergencies. And as we all know, emergencies do happen, such as a significant car repair, an uninsured medical expense, or a reduction in hours at your job. Be prepared.
Here’s how it works – let’s say there is a fire in your home. Not only do you have to fund repairs while waiting for homeowner’s insurance to pay out, but you have to find and pay for somewhere else to live in the meantime. Where does that money come from?
It cost you $3500 to make your home secure and $700 a week for a hotel room. You give your contractor and the desk clerk your credit card with the lowest interest rate, which is 12%. It takes two weeks for the homeowner’s insurance to pay for repairs, and two weeks to make the repairs. You are eventually reimbursed for your initial outlay for $3500 and $2800 for the hotel room after two months.
No big deal, right? Wrong. At 12%, having a revolving balance of $6300 cost you $90. How many boxes of diapers does $90 pay for?
What if you are not lucky enough to have a credit card at 12%? Here’s what you would pay for the use of the credit card lender’s money for two months at the more common, higher rates of interest:
Credit card at 16% – $118
Credit card at 18% – $132
Credit card at 20% – $145
Credit card at 22% – $158
Okay, so spending this money might not seem like a big deal, but what if there was no reimbursement from insurance? What if the $6300 was for a major car repair? If you used your 12% credit card and paid the minimum of $126 each month, it would take you 282 months to pay it off and you would pay $5,844.95 in interest.
Let’s say you could afford to pay double the minimum. It would still take you over ten years to pay it off, and you’d pay $2,033.69 in interest.
What’s that? You are willing to pay three times the minimum to get rid of this debt? Okay, that’s a monthly payment of $378 and it will still take you nineteen months to pay it off. You’ll pay $627 in interest. Not only that, but your debt-to-income ratio takes a hit, lowering your credit score and costing you more money should you have to take a loan out during this period.
Consider the alternative. If you save that $378 a month, it will take you only 16 months to save up $6468.82 and you will have made $42.82 in interest at 1%.
Start saving now – your money will be working for you, you will avoid having to work to pay the credit card lenders their exorbitant interest, you will preserve your good credit, and you will have the peace of mind knowing you are financially prepared for emergencies.
Save for Medical Needs, Education, and Retirement with Pre-Tax Dollars
There are state and federal programs that allow you to save for these needs with pre-tax dollars. Open these accounts and set up automatic contributions from your pre-tax wages. These contributions lower your income tax bracket, saving you money in income tax, and provide for the future needs of you and your family, usually at interest rates that compete with mutual funds or better.
If your employer offers matching contributions to your company IRA, it would be foolish to contribute any amount less than the match. Don’t leave free money on the table! It will add up over the length of your career.
These tips are proven to save you money both now and in the long run. Good luck!
About the Author
Veronica Baxter is a legal assistant and blogger living and working in the great city of Philadelphia. She frequently works with David Offen, Esq., a busy foreclosure and bankruptcy lawyer in Philadelphia.