What is the best way you've found to save money?

Question

Do you invest, if so how are you sure of what to invest in? Should I allow $40K to sit in CD's or invest? Please answer all questions thoroughly.

Answer 1

I invest regularly--I put 10% away for retirement in diversified stock indexes and target retirement funds. I put 3% in a high yield money market fund for short term expenses/goals and 2% in a diversified fund of index funds for longer term goals besides retirement. I also have other "fun" investments that are really more like gambling which I no longer add to (Prosper.com for risky fixed income and Scottrade for trading stocks).

I don't "know" what to invest in better than anyone else. That's why I rely mostly on index funds to track the market for me for my "real" investments. They outperform almost every mutual fund over time. They're also cheaper than mutual funds and more tax efficient. And there are no commissions or fees to buy and sell them. Why would you invest in anything else?

Here's what you should do with your $40,000:
1. Pay off all debt above 6% besides your mortgage.
2. Put enough money in a high yield savings account or money market fund to support yourself for 3-6 months if you decide not to or can't work for some reason (get at least 5%--I use Vanguard Prime Money Market fund; CDs earn less and tie up your money).
3. Put enough money in that same savings account to cover all potential irregular expenses you will have over the next year (insurance premiums, vacations, gifts, new car, etc).
4. Put the rest in broad market index funds--a Roth IRA if you don't already have one maxed out (I recommend Vanguard funds).

Here's what you should be doing already with your monthly income:
1. Put away enough in your 401k to get the company match. Choose index funds or a target retirement fund.
2. Then contribute to a Roth IRA--max it out each year. Again, stock indexes and/or target retirement funds.
3. Take your potential irregular expenses over the next year, divide by 12, and put that much in your savings account each month.

Answer 2

1. budget and automatically put 10%+ paycheck into savings.

2. I do invest. There is no way to be completely sure of what to invest in, but it's important to diversify whatever you get. Mutual funds and stock indexes would be a good start. Also read a book or two from the library on investing. I'm all little more experienced so I look for individual stocks from good companies with great products, past history, and future growth.

3. 40k in a CD is wasting a lot of potential money. I'd say move about 80% for better investments (the other 20% could be used as an emergency fund). The stock market average return rate is about 10% compared to about 5% now for a CD. If you keep the money in for a long time, the ups and downs will level out and the risk is not nearly as bad as it may seem. Compound interest will do amazing things for you (look at the calculator in the link below to compare 40k at 10% to it at 5% for whatever time period). A Roth IRA would be a great start because you can save money up for a tax-free retirement.

It's amazing what you can do if you put in a little to learn about investing and actually doing it. Good thinking for wanting to learn more and I hope investing will go well for you.

Answer 3

The best way to save money, truly, is to first evaluate your monthly spending habits and see where you can cut back. Do you really need the high-priced cable TV package and the extra minutes on your cellphone? Can you switch to a budget-plan for your heating and cooling costs? Electricity? Second, look at your extra spending....clothing--avoid buying new items, and learn to shop second-hand and consignment shops. Stay home and cook meals there rather than going out to eat. Make a deal with friends that you will take turns going to each other's homes each weekend and the person hosting for that weekend will make a meal and provide a DVD to watch. If you get three other friends to do this with you, you can have a month's worth of weekend entertainment, and you only have to pay for one time (your week).

Answer 4

CDs are alright they give about 5.4% return per year but all profits get taxed 15% annually.

You can make that money work harder though and take more risks.

Stocks return 10% or higher. Make sure you talk to your financial adviser to help you get a high return against the inflation rate.

Retirement accounts like Roth IRA is also good because it grows tax free and you withdraw it tax free. That means everything outside your retirement account is being taxed 15% every year from Uncle Sam but everything inside cannot.

Answer 5

Invest in Real Estate.
Buy a house or section (land). You don't have to live in it, you can rent it out.
My son bought a house for NZ$130,000-00 and lived in it for about six months, met this girl and went to live in her house, and rents his one out. He doesn't see the rental money because it goes straight into a Bank Account to pay off his mortgatge.
He bought it two years ago and it is now worth NZ$180,000-00. That's a bigger profit than any Bank or Investment can give you.
My house I bought for NZ$153,000-00 nearly seven years ago, and it is now worth NZ$380,000-00. Mind you the location (at the beach) sent house prices up heaps.
Real Estate is the best way to go.

Answer 6

Yes.
You can't be certain, so you diversify.
Don't let it sit in CD's unless you are near death.
It would take a book to tell someone how to decided how to invest 40k. I'd suggest you go to the library and start reading instead of listening to the amateurs (and worse) who spout off here.

Good luck,
Houyhnhnm

Answer 7

In my opinion, I would invest "some" in a small residential home, fix it up a little and rent it out. The rest of the funds would be allocated into CDs for future investment{s}. The monies received from your rental would soon pay off the cost out of your pocket for fixing it up 'and' you'ld still be making extra money to allocate into other investment[s] of your choice.

Answer 8

Normally, I filter off 5% of every paycheck into a high interest savings like www.emigrantdirect.com, which allows me to save at a high interest yet you can get at it in an emergency. It is a good way to get in a habit of saving. Once you get used to that then look to open a Roth IRA.

Answer 9

The best way I've found to save money is to not spend it.

That little tip should enlighten you.