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Building up savings, especially in uncertain times, offers peace of mind and can shield you and your family against a financial crisis. You’ll find these 7 Saving Strategies very helpful as you navigate through these unprecedented times.
1. Automate your savings
Putting your savings on autopilot is an easy way to separate savings from spending money. It’s tempting to spend money after it hits your checking account. Automating your savings will help you avoid that temptation.
Two great ways to automate your savings are:
- Split up your direct deposit and funnel part of it into a savings account.
- Set up a recurring transfer from your checking account into a savings account.
Typically, you can take either a percentage of your paycheck or a fixed amount and direct-deposit it into a savings account. You can also set an amount to be moved from your checking account into your savings account and then set the frequency of this transfer.
2. Set up an emergency fund
The common wisdom for emergency funds is that you should save at least three to six months’ worth of living expenses before you start saving for other goals. The emergency fund is separate from your other savings. It is a ready source of cash for unexpected expenses and a hedge against tapping a 401(k) or other long-term savings accounts. A sufficiently padded emergency fund also keeps you from having to use credit cards or borrow money to pay bills if you lose your job, need a costly car repair or encounter some other major, unplanned expense.
3. Tackle high-interest debt first
It’s critical to tackle high-interest debt as quickly as possible because it compounds and grows. The interest you pay is money you could be saving. One strategy for paying off debt is to zero out the highest-interest debt first. Once you’ve cleared that balance, move on to the debt with the next highest APR. This strategy, called the “avalanche method,” will reduce how much interest you pay over the long run.
4. Save for short-term goals
Once you have established an emergency fund, separate your next priorities into three “savings buckets” for short-term, medium-term and long-term goals. Savings for short-term goals should be liquid, meaning it should be accessible cash. And there is no time to ride out market corrections, so avoiding losses is important.
5. Save for medium-range goals
Let’s take for instance, If your dream is to save for a down payment on a home or your child’s college education, you’ll need to go beyond belt-tightening and set up midterm savings buckets. For instance, to save for your child’s education, consider using a 529 savings plan as your bucket. These tax-advantaged savings plans work much like a 401(k) or IRA. Your contributions are invested in mutual funds and other investments. With midterm savings buckets, avoid exposure to too much risk. The goal is still to preserve or increase capital.
6. Save for long-term goals
Retirement is perhaps the one savings goal where the time horizon is long enough that you can usually ride out market volatility. Still, it depends on how long you’ve been investing, how close to retirement you are and what sort of lifestyle you expect in retirement. Most experts say the only way investors can achieve a comfortable retirement is to invest a percentage of their long-term savings in equities.
7. Use multiple savings accounts
Having more than one savings account is a great way to earmark your money for different financial goals. This can help you make sure that money meant for one savings goal isn’t being used on another. If all of your savings is in one account, money meant for your emergency fund might accidentally be used for a vacation, for instance.
Having multiple savings accounts also gives you a clear picture of how you’re progressing toward your different savings goals.
Culled From Bankrate
