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By Claire Hegstrom
In a recent study, a shocking statistic revealed that almost 33% of Americans said they’ve never been able to save $5,000. When we think about the rising costs of healthcare and emergency room visits and the steady decline of affordable housing, it becomes extremely apparent that having an emergency savings fund is an important tool in maintaining excellent financial health.
In addition to offering financial stability, having savings set aside improves your physical and mental wellbeing in a multitude of ways. So if you’re ready to start saving for the first time, or you’ve saved before and are starting again from scratch, here are some key tips for success that you won’t want to skip.
Before you even start thinking about how much you’d like to set aside in savings every month, it’s a great idea to sit down and look at your monthly income and spending habits.
Do you fall into one of these groups of people? 1. I don’t think I make enough money to start saving. 2. I don’t have wild discretionary or “fun money” spending habits. If so, it can be extremely helpful to start with a Zero-Sum Budget. Writing out your budget like this could help you discover extra money you didn’t know you had!
First, you’ll list out all your income, and subtract your seven most costly monthly expenses—think rent/mortgage payments, student loan payments, insurance, etc. You may be surprised at how much money you have left after subtracting those seven expenses from your income! From here, you’ll be able to decide how much money you can start setting aside for savings each month.
If you’re new to saving, maybe your immediate goal is to have $1,000 in an emergency fund. That’s a great place to start! In fact, a recent study by CNBC reported that 59% of Americans would not be able to cover a $1,000 emergency, so you’d be better prepared than over half of the folks in the United States.
You can start with one simple goal, or create a short list of long-term and short-term goals that you’d like to accomplish with your savings accounts. No matter what financial milestone you’re looking to achieve, make sure your goals are SMART (Specific, Measurable, Actionable, Relevant and Timely).
A SMART goal would look something like, “I’d like to save $7,000 for a down payment on a new car by July 31.” Remember, there’s no goal too lofty when you have an action plan to get there.
One of the most important factors of your financial success is your savings account. A great savings account should have no monthly service fees, and generally offers an above-average interest rate. For example, an Alliant High-Rate Savings account is insured by the NCUA (National Credit Union Administration), and it doesn’t have tricky earning tiers or monthly service fees when you elect eStatements. Plus, if you need to pull your money out during an emergency, you don’t get charged with early withdrawal fees.
Supplemental savings accounts can also be helpful in keeping your goals clearly separated. You can usually name these accounts with specific identifiers like “Dream vacation” or “Down payment for a house” so that you don’t have to crunch numbers to see how much money is saved for each.
Paying yourself first is arguably one of the most important steps to achieving your savings goals. Once you’ve opened a high-rate savings account and decided how much money you can set aside each month, set up automatic transfers to your savings account after each paycheck. When you remove the barrier of physically transferring the money every two weeks, you will miss the cash less, and you won’t risk the chance of forgetting to make the transfer.
You can set up automatic transfers either through your credit union or bank’s online banking, or by changing your direct deposit information with your employer. If you’ve set up supplemental savings accounts as well, you can find those specific account numbers in online banking, or by calling your credit union or bank.
After you’re a few months into the savings game, you’ll likely try and think of ways you can save more money even faster. Start by looking at your monthly automated bills to see where you can save a few dollars.
A simple way you may be able to save over $100 a month is to cut the cord on cable and opt for streaming television services. You can also save a decent chunk of change by negotiating your cell phone and utility bills. A great shopping hack is to buy generic groceries instead of purchasing brand-name foods!
Refinancing loans like your car or mortgage could also help you lower your monthly payments or help you pay less in interest over time. Just remember, whether you’re saving money by ditching cable or lowering your car payment every month, be sure to continuously reassess your budget. You’ll want to increase your transfer amounts as you cut additional expenses.
Looking for more savings tips? Check out these helpful blog posts:
Claire Hegstrom is an advocate of the credit union movement through and through. Passionate about financial education, she approaches money conversations from a candid and inclusive space focused on growth and awareness. As our credit union founding father, Ed Filene, once said, “Progress is the constant replacing of the best there is with something still better.” Claire hopes reading Money Mentor will help transform your life from the best to even better.
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