The average American household has over $16,000 in savings, which may sound pretty good. However, 69% of American adults have less than $1,000 in savings to their name. Having a healthy savings account is important for a plethora of reasons. Retirement, emergencies, school tuition, and other large purchases can all be handled with an adequate amount of savings.
If you’re a part of the 69%, this is your year to start building good money-saving habits before it’s too late. The habits you establish now will be easier to maintain in future years, and a comfortable savings balance will give you peace of mind. Here are a few ways you can get started now:
1. Save Before You Spend
This piece of advice comes from the brilliant investor and businessman Warren Buffett. “Do not save what is left after spending,” he says, “but spend what is left after saving.” This change in perspective will help ensure that you are always saving regularly.
If you spend before you save, you run the risk of eating into your budget and having nothing left over. By saving first, you force yourself to stick to that budget, and your savings are preserved. As Buffett is one of the wealthiest men on earth, it’s safe to say that his financial advice is fairly sound!
2. Automate Your Savings
One way to follow Buffett’s advice is to put saving on autopilot. If you have a hard time remembering to transfer money into your savings account, set it up for automatic deposits. Contributing regularly to your savings account is a surefire way to develop a healthy habit.
Talk to your bank about setting up automated savings. This will regularly transfer a set amount from your checking account to your savings account at the frequency you choose. You can set it and forget it. However, checking up on your progress occasionally will be motivating and will ensure that all is well.
Another form of automated saving is round-up spending. You can do this with certain online debit cards. These kinds of cards round up your purchases to the nearest dollar and put the extra cents into savings. Your daily transactions will add small contributions to your savings account that will build up over time.
3. Set Savings Goals
To encourage the best money-saving habits, set regular goals to focus your efforts. You’ll have a specific number to aim for and will be able to take actionable steps toward the goals you set. Start with some realistic goals and build up to ambitious saving habits you want to establish over the long term.
You can set your goals based on a percentage or a particular sum. Your initial goal could be to save 5% of your monthly income, or you could choose a lump sum like $50 per month. As you make saving a habit, you can increase those numbers to match with your end goals.
Lifetime savings goals include retirement, children’s college funds, and any luxuries you want to purchase in the future. Keeping that new car in mind will be quite the motivating factor when considering your present saving habits.
4. Track Your Spending
You’ve been told a dozen times to create and stick to a budget. That advice still stands. However, you can take it one step further by tracking your spending. A budget can seem a bit static, used more as a guide than an actual record of your finances. Monitoring your spending will be a real catalyst for change.
Tracking each purchase you make will hold you accountable to your budget. It will also make you second-guess some questionable transactions, such as eating out for the third consecutive day or buying another pair of shoes. Compulsive buying is one of the fastest and easiest ways to break a budget and leave no room for savings.
By tracking your expenses, you’ll also be able to find ways to create savings. Look for ways to lower your utility bill, spend less on groceries, or save money on gas. Note down the possibilities you see, and then divert the money you save on these expenses into your savings account.
5. Minimize Debt Payments
Freeing up your monthly income allows you to put more into savings. But when your money is already earmarked for tackling piles of debt, there isn’t much leftover to save. Reducing your debt, and keeping it to a minimum from here on out, will enable you to save more effectively.
Start by looking at your existing debt and focus on paying off the highest-interest debt first. Paying more than the minimum payment each month will help chop it down to a more comfortable level. Once that’s taken care of, you’ll be in a better position to start saving.
Above all, avoid going into more debt. If you’re maxing out your credit card every month, that doesn’t mean you should apply for a new one. Control your current spending, and debt will be less of a problem.
6. Invest Your Money
As an alternative to letting your money sit in a bank and collect dust, you can put it to work by investing it. Investing is a double-edged sword, of course. On one hand, you can get a much higher return than you could in a low-interest bank account. On the other hand, there’s a level to risk when it comes to investing that you should keep in mind.
A 401(k) or Roth IRA account is a relatively safe, long-term option. Many employers will even match the contributions you make to these accounts. Your money moves with the market, so there’s a risk if the economy ever crashes again. But there’s also the likelihood that it will rebound by the time you’re set to retire.
Individual stocks are chancier, but they also offer higher potential rewards. Doing your research before putting your savings into individual stocks will help minimize the risk involved.
Ready to take your financial health into your own hands? Make a plan today and start developing savings habits that will pay off in the future. Don’t get discouraged when you fall short; just use the opportunity to learn and become a savings master.