Spend less, get out of debt, save more, and have money to invest

If you spend all the money you earn, your retirement won’t be pretty. On average, Americans save only 1% to 4% of their disposable income each year. Although the average U.S. savings rate has gone up, it isn’t enough to help people pay for things like college and retirement. Historic data shows that if you save money instead of spending it, you could have almost 3 times as much money in 20 years. So, before you spend $20 on Chinese takeout, ask whether it’s worth $60 to you. To help you save more, try some of these tactics:

Keep a written record of what you spend. Keep track of how you spend every dollar using categories like food, utilities, rent, dining out, auto repair, and so on. After a few months, add up your expenses in each category. When you realize how much you spend in some categories, for example, $400 a month dining out, you can start thinking about ways to cut back like bringing lunch to work and cooking at home more often. Learn more about tracking what you spend and creating a budget plan at http://tinyurl.com/ybe3n6y.

Don’t give up everything. Just as a diet is more successful if you allow yourself the occasional treat, a savings plan works better if you let yourself spend some money on fun stuff. If you and your spouse have date nights, don’t give them up, but consider less expensive entertainment. Spending $50 each week adds up to more than $50,000 over 20 years, so cutting that weekly expense to $30 saves you $20,000.

Prioritize your spending. Ask yourself what really matters: paying your mortgage, feeding the kids, commuting to work. Set aside money for that and then economize. A $500 birthday present each year for 20 years means $14,000 less when you retire. Bankrate.com has a calculator to help you calculate the impact of your spending changes (http://tinyurl.com/ykxevho)

Get rid of the fat in your spending. Buy a latte but skip the pastry. Over 10 years, if you give up the $2.95 blueberry muffin (with 360 calories) you’ll save $12,824 (and over a million calories).When you invest, don’t forget the fees. Investments come with expenses, which reduce the return you earn. Be as frugal with investment expenses as you are with day-to-day spending. Page xx gives you the full scoop on fund expenses and how to control them.