Saving isn’t always easy, but it pays off over time. Having a solid savings base is especially beneficial to protect against economic uncertainty. With unemployment surging to 4.3% in August, the road ahead could be tough.
But how do you save more when money’s tight? According to Bankrate’s Living Paycheck to Paycheck Survey, more than one-third (34%) of working Americans spend their paycheck before payday. Plus, according to Bankrate’s Emergency Savings Report, 59% of people are worried about the size of their emergency savings.
If you’re worried about how much money you have in your account, don’t panic. There are easy ways to increase your bank balance by simply changing your habits.
Key savings statistics
- 36% of American adults say they have more credit card debt than they have saved for emergencies.According to Bankrate’s Emergency Savings Report.
- 56% of U.S. adults would not pay for an emergency expense of $1,000 or more from their savings accountAccording to Bankrate’s Emergency Savings Report.
- Gen Xers (ages 44-59) are most concerned about the amount of emergency savings they have of any generation.According to Bankrate’s Emergency Savings Report, 66% of respondents are worried about the amount of emergency savings they have, including 63% of Gen Z (ages 18-27), 60% of millennials (ages 28-43), and 51% of baby boomers (ages 60-78).
- The average emergency savings fund is $29,741According to New York Life.
- More than half of adults (52%) have no retirement savings strategyAccording to New York Life.
- 89% of adults who know what financial success looks like to them say they haven’t achieved it yet.According to Bankrate’s Financial Success Survey.
source: Bankrate, New York Life
1. Automate your savings
Getting better control over your savings goals starts with getting a clear picture of your financial situation. Automating your savings is also a smart way to increase your savings.
Automating your savings is an easy way to separate your savings from your expenses. After the money is in your checking account, it’s tempting to spend it. Automating your savings helps you avoid that temptation.
Two ways to automate your savings are to split your direct deposit and move a portion of it into a savings account, or to set up a recurring transfer from your checking account to your savings account.
Typically, you can have a percentage or a fixed amount of your paycheck directly deposited into your savings account, or you can set how much money you want transferred from your checking account to your savings account and how often the transfer occurs.
2. Prepare an emergency fund
The general advice for emergency funds is to save at least three to six months’ worth of living expenses before you start saving for other purposes.
An emergency fund is separate from your other savings: It’s a source of cash for unexpected expenses and a hedge against dipping into your 401(k) or other long-term savings accounts.
With much talk of concern over the continued slowdown in the job market, having a substantial emergency fund will help you avoid having to turn to credit cards or payday loans to pay bills if you lose your job.
The amount you should save “will depend on how long you expect to spend searching for work,” says Judith Ward, vice president and senior financial planner at T. Rowe Price in Owings Mills, Md. “Households with only one worker or those who are paid commission may want to save a little more because of the uncertainty.”
3. Resolve high-interest debt first
For many Americans, debt is a major obstacle to reaching their financial goals, with 50% of credit card holders going into debt every month, up 6 percentage points since the beginning of the year, according to the Bankrate Credit Card Debt Survey.
It’s important to pay off high-interest debt as quickly as possible because the interest that gets added to your balance each month is money that you could be saving. With credit card interest rates averaging more than 20 percent, debt can cost you a lot of money.
A common money-saving strategy for paying off debt is to zero out the debt with the highest interest rate first. Once you’ve paid off that balance, move on to the debt with the next highest annual percentage rate (APR). This strategy, called the avalanche method, will reduce the amount of interest you pay in the long run.
If you have multiple high-interest debts, consolidating them can make them easier to deal with.
You can use Bankrate’s credit card payment calculator to figure out how quickly you can pay off your credit cards.
4. Save for different goals
Once you have your emergency fund in place, separate your next priorities into three savings buckets that include short-term, medium-term, and long-term goals.
These three different types of goals each require a slightly different approach, so consider using a savings goal calculator to track your progress towards each one.
Save for short-term goals
There is no strict definition of what a short-term goal is, but generally it is a goal you aim to achieve within a two-year period. Short-term goals tend to be specific and have a clear deadline.
Examples of short-term goals include:
- Car down payment
- vacation
- Apartment rental deposit
- Home renovation
Savings for short-term goals should be relatively easy to access. High-yield savings accounts, money market accounts, and short-term certificates of deposit (CDs) are great places to store short-term savings funds. However, CDs come with additional considerations because they require you to lock up your funds until maturity. You’ll need to look at a calendar to know exactly when you’ll need your funds and make sure you don’t pay an early-withdrawal penalty to get the funds out.
| Best accounts for short-term savings goals | |
|---|---|
| High Yield Savings Account | You’ll earn a higher rate of return than most savings accounts, and the interest you earn can be used to cover expenses or reinvested in another savings fund. |
| Money Market Accounts | Like a savings account, you will be limited in monthly transactions, but you will have the added benefit of being given a debit card and check-writing privileges, making transactions easier. |
| Certificate of deposit | It has a set period of time (e.g. 1 year) during which interest accrues but you cannot withdraw it without paying a penalty fee. |
Save for mid-term goals
If your dream is to save for a down payment on a house, your child’s college education, or your child’s wedding, you need to go beyond just saving money and create a mid-term savings plan.
Mid-term savings goals tend to take a few years to achieve, but can usually be achieved in around five years. They may cost more than short-term goals.
Examples of mid-term goals are:
- wedding
- Down payment for a house
- Pursuing Higher Education
- Children’s college funds
- Start a business
- Pay off your debt
For these goals, you’ll need accounts with some liquidity, but you won’t need to be able to withdraw money as quickly as you would for short-term goals. You can also employ different strategies with your accounts, such as setting up savings buckets within one account or laddering CDs.
| The best accounts for mid-term savings goals | |
|---|---|
| High Yield Savings Account | You’ll earn a higher rate of return than most savings accounts, and the interest you earn can be used to cover expenses or reinvested in another savings fund. |
| Money Market Accounts | Like a savings account, you will be limited in monthly transactions, but you will have the added benefit of being given a debit card and check-writing privileges, making transactions easier. |
| Certificate of deposit | The money is set for a specific period (e.g., five years), during which it accrues interest but cannot be withdrawn without paying a penalty fee.For medium-term goals, laddering CDs can also be useful for making payments such as a down payment on a home. |
Save for long-term goals
Long-term goals are usually not achieved for at least five years. For savers, retirement is usually the biggest long-term goal. Retirement may be the only savings goal with a time horizon long enough that it can usually weather the market fluctuations that are common with investing in stocks and bonds.
Another long-term savings goal is paying off large debts, like a mortgage. These debts require consistent financial planning over the long term. And the long term means that the way you save for your debt may change over time as your personal life changes. For example, if you get a higher-paying job, you’ll have more money to put towards paying off your debt.
Long-term savings often require looking beyond standard banking products like savings accounts and CDs to get a higher rate of return on your savings.
| The best accounts for long-term savings goals | |
|---|---|
| 401(k) | An employer-sponsored retirement account. Employees contribute a set amount to their salary, and the employer usually matches contributions up to a certain percentage. The amount you contribute to a 401(k) also reduces your taxable income. |
| IRA | A traditional IRA or Roth IRA is an alternative to an employer-sponsored retirement plan. With a traditional IRA, you pay tax when you make a withdrawal, but with a Roth IRA, you pay tax up front and don’t have to pay tax later when you need to withdraw the funds. |
| High Yield Savings Account | While retirement money is best kept in a retirement account, you can also save for other long-term goals in a high-yield savings account, which can be especially useful for things like paying off debt, because you can easily withdraw money each month and make regular payments. |
5. Use multiple savings accounts
Having multiple savings accounts is another way to allocate money for different financial goals. Having multiple savings accounts can help ensure that money you set aside for one savings goal isn’t used for another goal.
For example, if all your savings are in one account, money meant for your emergency fund could accidentally be used for a vacation.
Having multiple savings accounts can give you a clearer picture of your progress toward various savings goals. If you have $20,000 saved and it’s all in one account, it might be hard to know that you have $5,000 saved for an emergency fund and $15,000 saved for a home purchase.
And since many banks offer savings accounts with the same interest rates, no matter how low your balance is, you don’t have to put all your savings in the same account to get the highest yield.
Other ways to save money
Reduce expenses
In today’s expensive environment, cutting back on spending may seem impossible, but it’s important to scrutinize your entire budget for opportunities to make cuts. Examine your recent spending patterns to see if there are obvious ways to reduce your monthly expenses.
Don’t forget to think about recurring fees for things like auto and homeowners insurance. If you’ve had the same insurer for years, your premiums may have increased periodically. Compare other quotes to see if you can find a better deal.
Use a mobile banking app
Mobile banking apps have made it easier than ever to manage your finances and track your savings on the go. Many of these apps offer automatic savings features, virtual savings envelopes, and unique budgeting tools to help you stay on top of your spending. Plus, they’re part of your banking service, so there’s no extra charge for them. If you’re looking for a tool with a bit more advanced features, you might want to check out some of the best budgeting apps, some of which may charge you a monthly or yearly fee.
Take the Savings Challenge
Saving money doesn’t always seem like a fun task. After all, it probably means bringing your lunch to work and skipping happy hour with friends in the evening. But you can make saving money more fun by turning it into a game or challenge. For example, the 52-week savings challenge is a popular savings strategy that encourages consumers to save a small amount every week for a year, gradually increasing the amount saved over the course of the year. Turning savings into a fun challenge can help keep you motivated to make progress toward your financial goals. There are other ways to create a fun game for yourself, such as a challenge to spend a weekend or a week not spending any money, except for regular bills that need to be paid to maintain a good credit score.
