Top six savings tips: Building and optimizing your savings plan
Learning how to save is a critical part of any financial plan. Whether you’re looking to reach your first $1,000 or already have a significant rainy-day fund stashed away, many of the savings strategies and tools are the same.
Learning how to save lays the groundwork for future financial success and security. With the right approach to saving money and using tools and accounts that allow for quick emergency access and potential long-term returns, you can save for big expenses and have money to fall back on. A solid savings plan can also help secure financial independence and stability later in life.
The six savings tips and tricks below can help you reach your financial goals and feel confident about your savings strategy today and in the future.
A savings account is a foundational part of any financial plan. Alongside checking accounts that help you manage your income and spending, savings account can help you establish the habit of paying yourself first each month.
A savings account is an easy and inexpensive way to cover unexpected costs and helps you establish a system for setting aside some of your monthly income. Be sure to connect with your bank to help you figure out which savings account is best for you and determine how much money you should be setting aside. Once you have a goal, it gives you a tangible number to work toward, and as you get closer, you can feel more confident about having money saved up.
Tip 2: Start saving
Saving a large sum of money can seem like a daunting task and it can be hard to know where to start. It’s important to start small and look at your everyday choices.
Food for example, typically accounts for quite a bit of your budget. Consider planning your meals ahead of time to avoid stopping for fast food or grabbing a meal on the go. Sit down once a week and review your bank accounts, bills, expenses and income. You can use this time to evaluate whether you are staying on track with your savings goals or if you need to make adjustments for upcoming or unexpected financial obligations. If you are going through a hard time and your budget is tight, adjust your strategy to give yourself some more funds to work with without halting your savings plan. For example, cut down on how much money you are putting into savings, instead of stopping completely.
Tip 3: Save money for an emergency
In addition to having a basic savings account, it’s also important to have an emergency fund for unexpected costs. No matter how secure you feel at your job, or how unlikely an emergency may seem to you, it’s best to prepare for the worst.
Keep track of money going out of your household so that you understand how much cash you are spending in a given month. This will help you know how much to save and how much money you need in your emergency fund to cover three-six months of expenses. One trick is to automatically transfer your funds during each payment period to help eliminate the temptation of spending the money instead. Once your emergency fund is built up, save it for just that and try to avoid using it for unnecessary purchases.
When you’re making a financial plan, how and how much you save makes a big difference. As your life changes, your savings strategy should too.
- In your 20s and 30s: When you are just starting out in your career, it’s smart to focus on building your financial foundation. Build an emergency fund, identify your debt and create a plan to pay it down and take advantage of your employer benefits lime a 401(k)-retirement plan, tuition reimbursement and wellness incentives.
- In your 40s and 50s: As you age, you will need to change your strategies to home in on long-term savings goals. Look to improve your income whether through a side business, raise or company switch. Be careful about any new debt and work to reduce your expenses.
- In your 60s and 70s: Be sure to make a new budget after retirement that better represents your income and expenses. Carefully choose when to start receiving social security or pension payments and don’t stop investing.
Once you have your savings foundation built, it may be time to explore other savings options. Money market accounts can offer higher interest rates on balances, which means the money you put away may earn more over time than it would in a standard savings account. It’s important to note that there can be some restrictions, so this account is best once you already have a good amount of money saved.
Money market accounts offer up a way to help you maximize your savings goals, while still being able to use the funds. However, an important note about this type of account is that the benefits are often tied to their interest rates, which fluctuate with the market. Consider speaking with your banker or financial professional to see if a money market account makes sense for your plans.
Tip 6: Think long-term about savings
OK, so your savings habits are established and your emergency fund is already well-stocked. What are the next steps for your savings plan? Remember: a savings plan isn’t something that is ever truly finished. Instead, the ways you save may change as you build up your savings account and emergency fund and turn your focus on the future.
One thing you might consider as you plan is a time deposit (TD) account. A TD is a savings vehicle that typically allows you to earn interest on your money faster, or at a greater rate, than a standard savings account. With TDs, interest is compounded over time, which means your funds may be more likely to grow for the future. However, TDs lock your money in for a set time, which can range from one month to five years (and beyond). Talk to your banker or financial professional for details on TD accounts in today’s economic environment.
Saving money is a lifelong responsibility—one that pays off when you encounter an unpredictable emergency, whether it’s during your career or in retirement. Get started on your savings strategy today so you can feel prepared for what’s next.
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