Your 5-minute guide to saving money

Then keep these tips in mind:

• Learn the difference between needs and wants. The key to controlling spending is distinguishing between the two. Food, shelter and transportation are needs; shopping at Whole Foods, having an extra bedroom and driving a $40,000 SUV are not. (See "The best financial advice ever.")

• Beware of bulk buying. Temptations lurk in every aisle of a big-box store, so you'll often buy more than you need. (See "6 saving secrets from 'Frugal Fanny.'")

• Don't get hooked on big-name brands; buy whatever is on sale. Buy store brands when it makes sense -- which is often. Paper products in particular are available at half the price. (See "10 easy ways to save $500 or more.")

• When you're cooking, use less salt, sugar and oil. You'll save money as well as be healthier (which also helps avoid health issues and medical bills).

• Take your lunch. When you fix dinner, pack a serving directly into your lunch container to save time later.

Now that you have it

Once you have a savings plan, open an account that's specifically for savings. Banks offer basic, low-interest savings accounts and higher-interest money-market accounts. (Compare savings accounts.) Here are other places to stash your money:

• 401(k) retirement accounts allow your money to grow faster than at a bank savings account. With a traditional 401(k), taxes are deferred until you retire. With the Roth 401(k), you use after-tax income and the money grows tax-free. (Read more about the difference.) If your employer matches a percentage of your 401(k) contributions, that's free money, so contribute at least enough to get the full match. (See "12 steps to become a millionaire" and "7 ways to mess up your 401(k).")

• Roth IRAs allow your money to grow tax-free after you have paid taxes on the initial investment. (See "Why you need a Roth IRA -- now!")

• Online savings accounts can offer a higher interest rate than a regular bank account, and you often can get a sign-up bonus.

• Money market funds are mutual funds required by law to invest in low-risk securities. (Compare bank money market funds.)

• Certificates of deposit mature and pay interest in 30 days or more, usually with a higher interest rate for longer terms. (Compare CD rates.)

For your short-term savings, look at money market funds, CDs and savings accounts. IRAs and 401(k)s generally have penalties for taking out money before retirement. Avoid temptation: Don't get checks or debit cards that give you instant access to your savings.

Every little bit adds up

Saving money takes time and patience, but a little boost never hurts. These tricks can help you set aside money in ways you'll scarcely notice:

• Try this twist on the traditional change jar: Set aside certain denominations, such as $5 or $10 bills, whenever they make their way into your wallet. Put those bills into a jar or envelope as you get them. They'll add up fast. (See "10 easy ways to stash away thousands.")

• Figure out your take-home pay per hour (net pay divided by hours worked) and save the "change" from each hour. Deposit that amount into your savings account.

• Save your raises. When you get a raise at work, increase your savings and retirement deposits by the same amount. (See "Earning more without burning more.") You won't notice the change, but your savings account will.

Published Aug. 7, 2008

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