Experts recommend having at least six months’ worth of living expenses saved in an emergency fund to be prepared for unanticipated life events like injury, illness or job loss. But saving that much money can be challenging. Fortunately, there are many ways to save more. The following tips don’t require much effort at all so you can build an emergency fund without even really trying.
As you work towards reaching your goals, consider these expert tips for effective money management:
1. Automate Your Finances
“Paying yourself first” is one way to make sure you’re meeting savings goals.
“Set up automatic transfers from each paycheck to your savings account,” said Jason Thacker, Head of Consumer Deposits and Payments at TD Bank. “You can create a lifestyle based off of your remaining cash flow while also building up savings to support future financial needs.”
2. Set Up a Budget
If you don’t have a budget, it’s hard to know how much you’re actually spending and saving, and that picture can be even hazier if you’re dealing with debt.
Consider using a free budgeting app that sets a budget up for you and gives you a holistic look at your overall financial situation.
“My favorite money tool is Personal Capital,” said Dominique Broadway, founder of Finances Demystified. “This finance tool can help you see your net worth, your overall financial picture and help you plan your future. Plus, it’s free. It’s a great start to ensure your money is being well spent and allocated correctly. In addition, apps such as Mint, Personal Capital and You Need a Budget are great to ensure you are on track to reach your money goals.”
3. Open a No-Fee Savings Account
If your savings account charges a maintenance fee, you’re actively losing money from your savings each month. Consider switching to a no-fee savings account to make sure you’re not eating into your funds. Some banks will waive fees if you keep a minimum balance in the account, which, if you have enough money saved, is just as good.
4. Put Windfall Money in CDs
Receiving a windfall of money from wedding gifts or an inheritance can put you at a great advantage — if you manage it well. According to TD Bank’s 2018 Love & Money survey, which asked over 1,700 Americans about their financial habits, 28 percent of respondents said they put their wedding gift funds into a savings account.
If you come into a windfall, consider putting the funds into a CD account, which typically earns higher interest than a traditional savings account.
“CDs can be a great strategy to enhance your savings and investments profile if you don’t need to touch the funds for a period of time and want to lock in a higher guaranteed investment return,” said Thacker.
CD accounts differ from savings accounts in that your access to your funds is restricted during the life of the CD, so make sure you only deposit money you won’t need access to in the immediate future.
5. Don’t Pass Up Free Money
Many companies offer 401k matching, and if yours does, you should be taking advantage of it. The percentage of money that your company matches is essentially free, and it can grow tax free in a 401k account along with the rest of your contributions.
6. Think About Your Spending Before Making a Purchase
Before making an impulsive purchase, take a moment to think about if it’s really worth it.
“There are a ton of helpful saving tips and recommendations, but the one I found most impactful personally has been to evaluate how many hours you had to work to earn the money you are about to spend,” said Thacker. “For example if you make $20 per hour and go out for dinner with friends and spend $100, calculate how many of hours of work it would have taken after taxes to earn that meal. I promise it will make you reevaluate some of your spending choices.”
7. Define Clear Savings Goals
The TD Bank Love & Money survey found that the majority of respondents (42 percent) are saving “just because” or for an emergency fund. Other top savings goals included vacation and travel (37 percent), retirement (34 percent), a large purchase (21 percent) and buying a house (18 percent). Whatever your savings goal or objectives are, keep them in mind by naming each savings account after what it is you’re saving for. This will help keep you motivated to stick to your savings plan.
8. Consider Opening a Money Market Account
Money market accounts often pay slightly higher interest rates than savings accounts, sometimes dependent on the amount of money you deposit. These accounts may also have restrictions on how often withdrawals can be made.
9. Shop With a Cash-Back Credit Card
If you are a responsible credit card user that pays your bill off in full each month, there’s no reason not to use a cash-back credit card. You’ll save money on every purchase you make if you use a cash-back credit card by getting a portion of your purchase — sometimes as much as 5 percent returned to you in the form of cash rewards.
10. Meet With a Financial Planner
Not sure of the best savings strategy for you? Sometimes the easiest way to figure it out is to ask an expert. A financial planner can help evaluate your current financial situation, establish goals for the future and set up a plan to achieve those goals. If you’re unsure how to improve your finances on your own, consider getting a professional to help you maximize your money.
The views of the author of this article do not necessarily represent the views of Gradifi. We make no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained here. Readers should consult their own attorneys or other tax or financial advisors to understand the tax, financial and legal consequences of any strategies mentioned in this article.