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Spend less and save more by changing a few old habits

For most people, wealth accumulation is a long-term proposition. If you're counting on the lottery to fund your retirement or hoping an unforeseen windfall will put your kids through college, it might be time to reconsider. Instead, take a hard look at your current saving and spending habits.

Achieving your financial goals requires tangible and specific steps taken day in and day out. By adopting a few simple practices, you can learn to save more and spend less.

  • Automate your savings. You've heard the expression: "Out of sight, out of mind." This is a great way to think of your savings. Don't deposit your entire paycheck into a regular checking account. Direct a portion to a savings account and another portion to a 401(k) or IRA account and then don't touch them. If you don't see these amounts in your everyday checking account you're less likely to spend them.
  • Pay off your credit cards every month. For many people those little pieces of plastic are a toxic trap. On average, Americans between the ages of 18 and 65 carry $4,717 of credit card debt. If the average credit card's interest rate is 15 percent, paying off that debt with the minimum payment of $189 will take more than ten years and cost more than $22,000. To build wealth, join the 35 percent of credit card users who make a habit of paying off their bill each month.
  • Curb impulse purchases. Letting emotions rule is a sure way to break the budget, max out your credit cards, and fill your home with unnecessary stuff. Make a list before you shop. Then stick to it. Eat a big meal before buying groceries. You'll be less likely to let your hunger influence your decisions. Learn to procrastinate on non-essential purchases. If you wait a few days, you may find you don't really need the item(s).
  • Use cash. It may be old fashioned, but paying with currency instead of plastic can short-circuit the urge to buy stuff you don't need. Studies have shown that paying with a credit card is less painful than paying with cash. As a result, shoppers tend to spend more money when using plastic.
  • Pump up your emergency fund. Life happens. Routinely setting aside money in a rainy-day account can relieve stress today and lessen the tendency to use debt when times get tough. How much is enough? Many advisors suggest an emergency fund covering at least three months of living expenses. Automating deposits to an emergency fund is a great way to start.

The concept of spending less and saving more seems simple enough, but it requires changing old habits. If you take on these steps, perhaps one at a time, slowly you will begin to save and be better prepared for unexpected future expenses.

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