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To stay afloat during tough times, financial experts recommend that you keep three to six months’ expenses in a savings account. But, if you are in the majority, you likely only have less than $1,000 in your savings account at any given time. Thankfully, 2020 is here to give you a chance to start anew and get your savings in check. All you have to do is follow the tips below to start building a healthy savings fund and boost the health of your finances.
Build a Budget and Stick to It
To halt excessive spending and channel your money into all the right areas, you need to build a budget and stick to it. Before you can do that, however, you need to see just where all your money is going. You can either use an app that connects to your accounts, like Mint, or simply write down all your spending for a month.
With that information in hand, you can see where you can cut back your spending and divert the funds into savings instead. You can work your budget on paper or use a software program, such as You Need a Budget, to make every dollar count.
As you build your budget, try to follow the 50/30/20 rule. By following this rule, you will assign 50% of your take-home income to necessities, 30% on what you want, and 20% for paying down debt and saving. You can tighten up these figures as you wish by pulling out of the “want” category for savings and debt repayment.
To nix the urge to spend, consider taking a picture or screenshot of the item you want and waiting at least 24 hours. Or think about the hours it took to earn the money you will spend on that want. Before you know it, the urge to spend that money may dissipate, leaving more in your bank account at the end of the month.
Switch to a High-Yield Savings Account
The national interest rate for savings accounts has been steadily declining through the decades, landing at just 0.9% at this time. This does not even keep up with the inflation rate of 1.9%, putting you at a loss by the end of each year. To overcome this issue, you can switch to a high-yield savings account.
With interest rates of 1.9% or higher, high-yield accounts keep your money growing at a decent rate. And since many are online, you cannot just head down to your bank for a withdrawal, helping keep your money in savings where it belongs.
Go with Automatic Savings Deductions
Automation makes everything easier and putting money in your savings is no exception. So, set up your account to automatically pull money from checking and put it into savings every month. You will hit your goal without even thinking about it and can adjust upward year to year to maximize your savings.
Gradually Bump Up Retirement Savings
Your high-yield savings account is not the only one in need of love. Your retirement account also needs attention each year to realize its full potential. You can maximize your retirement savings pain-free by increasing your contributions by just 1%. Then, make it a tradition to celebrate the new year with this smart move to keep bolstering your savings for the future.
Additional Fun Ways to Save Big
Once you have your retirement contributions and automatic deposits ticking away, you can continue to increase your savings in fun ways. Here are a few to try throughout the new year.
- Transfer Leftover Funds to Savings on Payday. Each time you get paid, take whatever was left in your account before the check hit and transfer it to savings. Even if you only have $50 of your check left after expenses, you can end up with more than $600 in savings by the end of the year.
- Practice No-Spend Months on Occasion. If you can swing it, designate a month or two out of the year as a no-spend month. Then, task yourself with only covering necessities, such as bills, food and fuel, leaving all wants to the wayside during that time.
- Sock Away All the $5 Bills You Encounter. Every time you come across a $5 bill, place it in your savings to watch the money grow before your very eyes. If you do not often carry cash, transfer $5 into your savings every time your checking account balance ends on 5 or 0 instead.
- Round Up Your Purchases for Savings. Alternatively, you can just round up all your purchases and put the change in your account to bump up your balance. Although it is less than a dollar at a time, the difference can add up quickly, giving you several hundred extra dollars in savings each year.
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