4 Ways to Start Building Your Savings

how to build your savings

For a lot of people, the idea of having any money to save can be laughable. When you’re working paycheck to paycheck and struggling to make ends meet, it might seem impossible to put any amount of income away for the future. After all, what is the point of saving $5? But saving any amount of money is worth it. Studies have shown that having even $500 in savings can help immensely in the event of an emergency. So while the standard advice for a savings goal is six months of living expenses, every little bit helps. If you are new to saving money, or recently had your savings drained, here are a few ways to build your savings account or emergency fund.

1. Pay Yourself First

Whether you are building your savings account for a big purchase, to fulfill a life goal, or for retirement, the best way to achieve your savings goals is to pay yourself first. A lot of people make the mistake of trying to save the money they have left over at the end of the month—and often find they don’t have any money to put towards their savings accounts. Before you have the chance to spend the money on anything else, put it into a designated savings account.

In order to make sure you pay yourself first, you must get a good handle on your budget. If you can determine what your income and expenses are, you will have a better idea of how much money you can safely put towards savings every month. A budget will allow you to be realistic about your savings goals, while also curbing your excess spending. For example, if you notice you are spending a lot of money eating out, make an effort to cook at home more often and then put the extra money into savings. Every little bit does matter! When creating your budget, make savings the ultimate goal and allow your spending choices to reflect that goal.

2. Make Building Your Savings a Habit

Another good way to build your savings is to make it a habit. It matters less how much you are saving each month; it’s more important that you are consistently depositing money into your savings account. A great way to do this is to set up an automatic deposit. Most banks will let you automatically deposit a set amount of money from your checking account into your savings account on a specific day of your choice. The first few days after pay day is a good automatic deposit day. With automatic deposits, you may not even notice the money is missing from your checking account in the first place. As this “habit” will largely go unnoticed, making it a very easy way to save!

3. Look for Sneaky Ways to Save Even More Money

After you have been saving for a while, you will have a good idea of your income, expenses, and budget. At that point, you should critically examine your spending to see where you could eliminate expenses in order to allocate even more of your income to savings. It is always a good idea to put “extra money,” like bonuses or tax refunds, into your savings. Make sure you are taking full advantage of your employee benefits. If your employer offers transportation reimbursement, matching retirement savings plans, or insurance, you can save money by taking advantage of these benefits. If you are job searching, look for employers who can help you achieve your financial goals.

4. Create a Separate Emergency Account

Once you have an established savings account, it might be a good idea to consider a separate savings account labeled as an emergency fund. Having an emergency fund that is separate from your savings account can ensure that even when facing an unfortunate financial event, you won’t lose all of your savings in the process. With a savings account and an emergency fund, you can plan for unforeseen medical expenses or an unexpected car repair while still putting money away for your future.

Saving money can give you peace of mind and a sense of financial security. Knowing you have the financial resources to get through some of life’s many hurdles is a powerful feeling. Every dollar you put into savings is an investment in your financial future. Everyone has to start somewhere, so start saving today!

Can I Pay Off Debt and Build Savings at the Same Time?

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As we often talk about here on the Veitengruber Law blog, paying down your debt should be a primary concern for anyone interested in financial freedom. It’s impossible to have any kind of financial stability if your debts outnumber your savings. Many people, however, have become so focused on getting rid of debt fast that they completely ignore their depleted savings account.

The number one reason why you should keep adding to your savings account even as you pay down your debt is this: the money you put toward savings and investments will make more money.

Naturally, the logical argument is that long overdue debts will end up costing you more money due to accruing interest and late fees, so it may seem like it’s all a wash. That’s why it’s important to strike the right balance.

Telling you to find the right balance is easier said than done, and we realize this. That’s why we have a few pointers to help you get started.

  • Make saving a priority. Rather than pushing savings all the way down to the bottom of your priority list, set up auto-payments so that part of each paycheck goes directly into savings.

 

  • Get more bang for your buck. It’s true that most local brick and mortar banks offer pitifully low interest rates on savings accounts. Luckily, the great big world wide web is home to some much better options, like MySavingsDirect, Synchrony Bank and Ally Bank.

 

  • Cut corners where you can. Right now, it’s time to really think about where your money goes. In order to pay off debt and build savings simultaneously, your lifestyle may need a little tweaking. No more than half of your pay should go toward living expenses, and this includes your rent or mortgage payment. If the numbers simply don’t work out, seriously consider one or more of the following:

 

Find somewhere less expensive to live.

Stay with friends or family on a temporary basis.

Refrain from acquiring any new debt until your current debt is paid off.

File for bankruptcy.

 

  • See the forest for the trees.” In other words, don’t forget to keep your eye on the bigger picture. For you, that means after your debt is paid off, you won’t be starting at the bottom all over again in an attempt to build up your savings. By working in moderation to both pay your debts and increase your savings, you’ll be setting yourself up for a much better outcome than if you simply plowed through all of your debts with nothing to show for it.

 

  • Think positively. It can most definitely feel impossible to get out of the red and into the black, especially when one contemplates doing both at the same time. However, your mental attitude can be the tipping point to success or failure in any situation. Whether your trip toward financial stability involves filing for bankruptcy or simply avoiding any new credit card debt, keep your eye on the prize. It will be so, so worth all of the effort.

 

Image credit: SPB