The importance of saving money is simple is it allows you to enjoy greater security in your life. Saving gives you the freedom to live life on your own terms. Despite the importance of saving money, many of us aren’t following through on that tip. When it comes to doing the right thing financially, just knowing you should save isn’t enough.
It can be tough to allocate some of your cash to a savings account if you don’t have a set goal for that money. Why save for later when you can spend on what you want today, right? But among the many reasons to save money is that even if you don’t know exactly what you are saving for right now, you’ll likely find something you want to save for in the future. A new car, a new home, a child’s education… the possibilities are endless. Plus, it’s critical to have some cash set aside for emergencies and unexpected expenses as they come up.
1. Eliminate Your Debt
If you’re trying to save money through budgeting but still carrying a large debt burden, start with your debt. Not convinced? Add up how much you spend servicing your debt each month, and you’ll quickly see. Once you’re free from paying interest on your debt, that money can easily be put into savings. A personal line of credit is just one option for consolidating debt so you can better pay it off.The best way to jumpstart establishing a budget is to realize your spending habits. On the first day of a new month, get a receipt for everything you purchase throughout the month. Stack the receipts into categories like restaurants, groceries, and personal care. At the end of the month you will be able to clearly see where your money is going. Additionally, your bank or credit union may have this as an online-banking feature. Seeing what you spend in total on food, shopping, etc. can be humbling!
If you have trouble with overspending, try the envelope budget system where you use a set amount of cash for most spending. And once the cash is gone, it's gone.
2. Automate your savings with an app
If you often forget to put money into your savings account or struggle to know how much to sock away, consider using an app that does the work for you.There are plenty of apps that will automate your savings. Qapital and Digit are two options. These automated savings apps are designed to automatically transfer a predetermined amount from your paycheck into your savings.
You won’t earn the highest annual percentage yield (or sometimes any) on your deposits with these apps, so once you’ve saved up a bundle, consider transferring the money into a high-yield savings account.
3. Set Savings Goals
Start saving for your retirement as early as possible. Few people get rich through their wages alone. It's the miracle of compound interest, or earning interest on your interest over many years, that builds wealth. Because time is on their side, the youngest workers are in the best position to save for retirement. Save your windfalls and tax refunds. Every time you receive a windfall, such a work bonus, inheritance, contest winnings, or tax refund, put a portion into your savings account.If you need motivation, set saving targets along with a timeline to make it easier to save. Want to buy a house in three years with a 20% down payment? Now you have a target and know what you will need to save each month to achieve your goal. Use savings calculators to meet your goal.
Those with a savings plan are twice as likely to save successfully.
4. Earn cash back on your purchases
Avoid purchasing expensive or unnecessary items on impulse with a self-imposed 24-hour rule. For any non-essential item, wait 24 hours before purchasing. It’s perfect for online shopping where your items can simply be added to your cart to purchase later.Even when times are toughest, you’ll still need to spend money on essentials, so you might as well be rewarded with cash back. There are cash-back credit cards that can help you collect cash back on your purchases. Some don’t even have an annual fee.
Your existing credit card might also have cash-back offers at certain retailers, but you might need to opt in to redeem this reward. These offers may have an expiration date or other terms and conditions, so double check to ensure you’re not caught off guard.
Cash-back apps might also be an option to consider before you start shopping for new credit cards.
5. Refinance your mortgage
Refinancing has a lot of advantages: It can allow you to lower your monthly payment, save money on interest over the life of your loan, pay your mortgage off sooner and draw from your home’s equity if you need cash.Explore if you have the option to refinance your mortgage to a lower interest rate. On a 15-year $100,000 fixed-rate mortgage, lowering the rate from 7 percent to 6.5 percent can save you more than $5,000 in interest charges over the life of the loan. And, you will accumulate home equity more rapidly, thus increasing your ability to cover those pesky unexpected home repairs.
6. Set up automatic payments for bills if you make a steady salary
We’re busy. It’s all too easy to forget to pay all of our bills on time. One easy way to save money is to pay your bills when they’re due, assuming you can afford to do so.Companies charge you late fees for overdue balances. While this might amount to just $5 here or $10 there, those fees quickly add up. Credit card late fees can be a lot more expensive.
People with irregular income may want to hold off automating bill payments and instead consider trying a service like Steady, which connects you to side gigs and other earning opportunities near your payday and bill due dates.
7. Create an Interest-Bearing Account
For most of us, keeping your savings separate from your checking account helps reduce the tendency to borrow from savings from time to time. If your goals are more long-term, consider products with higher yield rates like a CD or money market account for even better savings.Open a short-term certificate of deposit (CD): A one-year CD could help you earn more interest than a savings account. Plus, a CD’s yield is usually fixed; as long as you keep the money in the CD through the duration of the term, you’re guaranteed to earn the opening APY.
One important caveat: Avoid CDs if you think you might need the cash before the CD term ends, so you won’t have to pay early withdrawal penalties.
8. Make your saving automatic
Saving automatically is one of the easiest ways to make your savings consistent so you start to see it build over time. One common way to do this is to set up recurring transfers through your bank or credit union so money is moved automatically from your checking account to your savings account. You get to decide how much and how often, but once you have it set up, you’ll be making consistent contributions to your savings.Saving automatically will help you build the good financial habit of saving regularly, but without putting in a lot of effort. And since the money never hits your checking account, you’ll never miss it which potentially reduce the temptation to spend what you should be saving.
9. Annualize Your Spending
Do you pay $20 a week for snacks at the vending machine at your office? That’s $1,000 you’re removing from your budget for soda and snacks each year. Suddenly, that habit adds up to a substantial sum.As you implement these tips into your financial life, remember that where you save your money is important too. Regularly move the money you save out of your checking account into your savings account, where you’ll be less likely to touch it before you reach your goals.
How do I build it?
There are different strategies to get your savings started. These strategies cover a range of situations, including if you have a limited ability to save or if your pay tends to fluctuate. It may be that you could use all of these strategies, but if you have a limited ability to save, managing your cash flow or putting away a portion of your tax refund are the easiest ways to get started.Building a savings of any size is easier when you’re able to consistently put money away. It’s one of the fastest ways to see it grow. If you’re not in a regular practice of saving, there are a few key principles to creating and sticking to a savings habit:
Set a goal. Having a specific goal for your savings can help you stay motivated. Establishing your emergency fund may be that achievable goal that helps you stay on track, especially when you’re initially getting started. Use our savings planning tool to calculate how long it’ll take you to reach your goal, based on how much and how often you’re able to put money away.
Create a system for making consistent contributions. There are a number of different ways to save, and as you’ll read below, setting up automatic recurring transfers is often one of the easiest. It may also be that you put a specific amount of cash aside each day, week, or payday period. Aim to make it a specific amount, and if you can occasionally afford to do more, you’ll watch your savings grow even faster.
Regularly monitor your progress. Find a way to regularly check your savings. Whether it’s an automatic notification of your account balance or writing down a running total of your contributions, finding a way to watch your progress can offer gratification and encouragement to keep going.
Celebrate your successes. If you’re sticking with your savings habit, don’t miss the opportunity to recognize what you’ve accomplished. Find a few ways that you can treat yourself, and if you’ve reached your goal, set your next one.
It’s important to remember to keep your retirement savings and emergency fund separate. There are better ideas than using your retirement savings for unexpected expenses. Instead, you can put your retirement savings into a long-term investment account like a 401(k). Just be sure to contribute enough to get your employer to match if they offer one. An emergency fund can be kept in a high-yield savings account, which earns interest and is readily available.
