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Saving money and building an emergency fund is crucial. According to Lending Tree, 49% of U.S. adults admit they wouldn’t be able to cover a $1,000 emergency using only cash or their banking accounts. This figure alone should convince you to start saving.
Sometimes, it can be confusing and frustrating to start saving money. But, it doesn’t have to be.
Here are 9 steps to help you start saving money, according to Experian.
1. Set Your Savings Goals
The first step is to set a reasonable savings goal for yourself. Consider how much money you have left each month after your regular expenses. Take a percentage of the remaining amount and set your savings goal off of that figure. This way, all of your expenses will be covered first and then you can use some of the extra cash you have in your checking account.
2. Formulate A Budget
If you haven’t already done so, creating and setting a budget for yourself is key. Determine how much you need for your fixed monthly costs such as your mortgage or rent and then account for the average of your variable costs such as utilities, groceries, entertainment, etc. Once your budget for each category, see how much cash remains after you subtract all of these expenses from your take-home pay.
3. Pick A Savings Account
Now that you’ve set your goals and created a budget, the next step is to pick a savings account that’s right for you. Some savings accounts have a required minimum daily balance to keep the account open or charge a monthly fee. Other savings accounts, such as high-yield savings (HYS) accounts, offer higher than average interest rates. An HYS is a smart choice if you’re looking to keep your assets liquid and benefit from risk-free growth.
Make Your Money Work for You
4. Open One Or More Savings Accounts
If you have a variety of different savings goals, it’s wise to open not one but two or more savings accounts. Each savings account can be used to save for a different goal such as an emergency fund, a family vacation, or a down payment to purchase a home. Typically, you’ll need the following to open a savings account:
- A government-issued photo ID;
- Your Social Security number or individual taxpayer identification number;
- A second form of identification;
- A minimum initial deposit, in some cases.
5. Elect For Automatic Deposits
Once you have one or more savings accounts set up, consider setting up automatic deposits or transfers from your checking account to each of your savings accounts. One tip is to set the automatic deposit date on the same day you’re paid. The money will go straight into your savings and it’ll be like you never saw it.
6. Determine The Timeframe For Your Automatic Savings Plan
Your savings goals might have specific timelines. Think about how long you need to save for each goal and determine the periods in which you set your automatic transfers. For example, if you’ve reached your goal of saving for that home down payment, you could change or end the automatic deposit or start saving for a new goal.
7. Keep An Eye On Your Savings Account
Although your savings might be automatic, it’s smart to check on your savings account at least once a month to see the progress you’ve made. You’ll also be able to see any interest payments that are paid to you, which get added to your balance and compound over time.
Make Your Money Work for You
8. Minimize The Number Of Withdrawals From Your Savings Account
The idea behind savings is that you only use them for emergencies or when you need to take money out to pay for a goal. If you find that you’re dipping into your savings too often, consider reevaluating your monthly budget and setting an automatic savings amount that’s more aligned with your cash flow.
9. Make Necessary Adjustments To Your Savings Plan As You Go
As with any goal, it’s necessary to evaluate along the way. If you’re suddenly incurring higher monthly costs because your rent went up or now you have a new monthly car payment, be sure to adjust your savings rate to align with your current budget.
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