SAVING
Eight Easy Ways to Pay Yourself First
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f you're going to avoid the financial nightmares that can arise in our lives, you must move from spender to saver.
To do that, you must figure out how to pay yourself first. Don't worry about whether you're getting the top return for your dollar. Just concern yourself with developing the discipline to save rather than spend. Earning a top return will come later.
Here are eight ways to get started:
1. Sign up for the 401(k) plan at work.
Contribute up to the amount of the company match, which is the amount your employer kicks in when you contribute. The most common match is 50 cents on the dollar. This gives you a 50 percent immediate return on your money.
2. Pay off all your credit cards and student loans.
Using debt creatively is cool today. But paying off your debt is better. By paying down debt, you get a return of whatever the interest rate happens to be. So pay off $1,000 that you're carrying at 18 percent and you get an 18 percent-return.
3. Set up an automatic investment plan.
You can arrange to have as little as $50 a month deducted from your bank account and deposited into a mutual fund account.
4. Round up your monthly mortgage payment by $20, $50 or even $5.
There's been a lot of talk recently about whether you should pay down your mortgage or try to get a better return elsewhere. Who cares? If it's a choice between saving something and saving nothing, put extra money into your mortgage.
5. Open up a savings account.
Write a check to savings every time you get paid. Better yet, set up an automatic deposit system through your employer and bank and have the money automatically transferred to savings. Start with $50 a paycheck and then increase to $100.
6. Pay off your car loan.
Interest on your car is not deductible unless it's through a home-equity loan. Even then, the rate is probably higher than on your mortgage. Pay it off and save.
7. Arrange to have extra money withheld for federal income tax.
Pay no attention to this if you do all of the previous recommendations. Financial advisers say this doesn't make sense because you're giving the government free use of your money. And if you can successfully save and invest your money without this discipline, they're right. But this is another method of forced savings. And in today's low-interest rate environment, you're not losing much. "With interest rates at around 3 percent in 1998, that's just $3 in earning on each $100 for a year," says Laurence Foster, partner at KPMG Peat Marwick. When you get your tax refund, put it in a savings account.
8. Open a Roth IRA.
Do this only after you've maxed out with your company's retirement plan. The Roth IRA, which first became available in 1998, is the IRA for the Rest of Us. The income maximums are much more reasonable than with the tax-deferred IRAs. The money you contribute is after taxes, but when you withdraw it, it's tax-free.
As of 1998, if you earn less than $95,000 as a single or $150,000 for a couple, you can contribute up to $2,000 ($4,000 for a couple). The money is not tax deductible. But you need never pay tax on the earnings. You can tap into the money, too, provided you withdraw the contributions you made, not the earnings. There's no mandatory withdrawal schedule and you can contribute as long as you earn income.
Many people who have learned from their financial mistakes over time are offering the same advice: "Pay yourself first. Build a nest egg. Stick to your budget. Get out of debt." It's a great way to start a new year, or any other time of year. 
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Copyright 1998 Microsoft Corporation