There are simple steps you can take to change your routine and improve your bank balance. (Dreamstime/TNS)
René Bennett | (TNS) Bankrate.com
Saving isn’t always easy, but it pays off over time. Having a solid savings foundation is especially useful to hedge against economic uncertainty. And with the unemployment rate rising to 4.3 percent in August, the road ahead may look rocky.
But how do you save more when money is tight? More than a third (34 percent) of working Americans live paycheck to paycheck, according to Bankrate’s Living Paycheck to Paycheck survey. In addition, 59 percent of people are dissatisfied with the size of their emergency savings, according to Bankrate’s Emergency Savings Report.
If you’re worried about how much money is in your account, there’s no need to panic. There are simple ways you can change your routine to boost your balance.
Important tips for saving money
1. Automate your savings
To better organize your savings goals, you should first get a clear overview of your financial situation. Automating your savings is also a smart way to increase your savings.
Putting your saving on autopilot makes it easy to separate saving from spending. It’s tempting to spend money after it hits your bank account. Automating your saving can help you resist that temptation.
There are two ways you can automate your savings: you can split your direct deposit and put some of it into a savings account, or you can set up a recurring transfer from your checking account to a savings account.
Typically, you can either take a percentage of your paycheck or a set amount and use direct deposit into a savings account. You can also set an amount to be transferred from your checking account to your savings account and then set the frequency of the transfer.
2. Set up an emergency fund
The general advice for emergency funds is to save at least three to six months of living expenses before starting to save for other goals.
The emergency fund is separate from your other savings. It is a source of cash for unexpected expenses and a hedge against dipping into a 401(k) plan or other long-term savings accounts.
With concerns about a further job market slowdown currently making headlines, having a sufficiently stocked emergency fund can prevent you from having to use credit cards or short-term loans to pay bills if you lose your job.
The amount you should set aside “depends on how long you expect to be looking for work,” says Judith Ward, vice president and senior financial planner at T. Rowe Price in Owings Mills, Maryland. “Households with only one worker or people who earn commissions may want a little more just because of that uncertainty.”
3. Tackle high-interest debt first
Debt is a major obstacle to reaching financial milestones for many Americans. According to Bankrate’s Credit Card Debt Study, 50 percent of credit card holders are in debt month to month, up 6 percentage points from the beginning of the year.
It’s important to pay off high-interest debt as soon as possible because the interest added to the balance each month is money you could be saving instead. And with credit card interest rates averaging over 20 percent, this debt costs a lot of money.
A popular savings strategy for reducing debt is to pay off the debt with the highest interest first. Once you’ve paid off that balance, move on to the debt with the next highest APR. This strategy, called the avalanche method, reduces the amount of your interest payments over the long term.
If you have multiple debts with high interest rates, debt consolidation can make it easier to manage those debts by combining them into a single debt.
Use Bankrate’s credit card repayment calculator to calculate how quickly you can pay off a credit card.
4. Save for different goals
Once you have an emergency fund set up, divide your next savings priorities into three areas that include short-term, medium-term and long-term goals.
These three different types of goals each require a slightly different approach. Consider using a savings goal calculator to track your progress toward each goal.
Save for short-term goals
While there is no strict definition of short-term goals, they are generally goals that you want to achieve within a few years or less. They tend to be specific and have clearer deadlines.
Some examples of short-term goals are:
—Down payment for the car
-Vacation
—Deposit for the apartment rent
—DIY
Savings for short-term goals should be relatively easy to access. High-yield savings accounts, money market accounts, and shorter-term certificates of deposit (CDs) are the best ways to store short-term savings. CDs require some extra consideration, however, because you must keep the money tied up until maturity. Check the calendar to know exactly when you need the money so you don’t have to pay early withdrawal penalties to access the funds.
Saving for medium-term goals
If you dream of saving for a down payment on a house, college education, or your child’s wedding, you’ll need to not only tighten your belt but also save money for the medium term.
Medium-term savings goals usually take a few years to achieve, but no longer than about five years, and they can be more expensive than short-term goals.
Examples of medium-term goals are:
—Weddings
—Down payment for a house
—Pursue higher education
—A child’s college fund
—Starting a business
—Pay a debt
For these goals, you’ll need an account with some liquidity, although the money doesn’t need to be available as quickly as for short-term goals. You may also want to pursue different strategies with the account, such as setting up savings pots in a single account or staggering CDs.
Save for long-term goals
Long-term goals are usually only achieved after five years. Retirement is usually the biggest long-term goal for savers. Retirement is perhaps the only savings goal where the time horizon is long enough to typically withstand the market volatility that is common in investing in stocks and bonds.
Another long-term savings goal might be paying off a large debt, such as a mortgage. These debts require consistent financial planning over time, and their longer time horizon also means that the way you save for them may change over time as your personal life changes. For example, if you get a better-paying job, you may be able to contribute more toward paying off a debt.
Saving for the long term often requires you to look beyond standard banking products like savings accounts and CDs to get a higher return on your savings.
5. Use multiple savings accounts
Having more than one savings account is another way to reserve your money for different financial goals. Having multiple savings accounts can help prevent money earmarked for one savings goal from going toward another.
For example, if all your savings are in one account, you may accidentally use money intended for your emergency fund for a vacation.
Having multiple savings accounts also gives you a clearer view of how you’re achieving your various savings goals. If you’ve saved $20,000 and it’s all in one account, it can be harder to keep track of the fact that you’ve saved $5,000 for an emergency fund and $15,000 to buy a home.
And since many banks offer savings accounts with the same interest rate no matter how low your balance is, you don’t have to put all your savings in the same account to get the highest return.
More ways to save money
Reduce your expenses
The thought of spending less can seem impossible given today’s high prices, but it’s important to take a close look at your entire budget to look for ways to reduce your expenses. Examine your current spending habits to see if there are any obvious ways to lower your monthly bills.
Also think about your ongoing costs for things like car and home insurance. If you’ve been with the same provider for years, you’ve probably experienced regular premium increases. Compare other quotes to see if there are any better deals.
Use your mobile banking app
Mobile banking apps have made it easier than ever to manage your finances and keep track of your savings on the go. Many of these apps offer automated savings features, virtual savings envelopes, and unique budgeting tools to help you stay on top of your spending. And because they’re part of your bank’s offering, they don’t cost anything extra. If you’re looking for a more sophisticated tool that can do a little more, you can check out the best budgeting apps – although some of these come with a monthly or annual fee.
Try a savings challenge
Saving money doesn’t always seem like the most fun task. After all, it probably means taking your lunch to work and skipping happy hour with your friends in the evening. However, you can make saving 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 each week for a year, gradually increasing the amount saved throughout the year. Making saving a fun challenge can help you stay motivated and make progress toward your financial goals. There are other ways to create a fun game for yourself, too, such as challenging yourself to spend nothing at all for a weekend or an entire week, other than the regular bills you need to pay to maintain a good credit score.
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