It’s so easy to ignore our savings. Our money just tends to go elsewhere. We work, pay our bills, and don’t have much left over, if any at all. And many times, we may need to work more than one job just to afford necessities.
If you’re barely making ends meet, you’re not alone. The Center for Financial Services Innovation (CFSI) says that 36% of Americans can’t pay their bills on time, while 47% of them spend what they earn or spend more than their income.
But that doesn’t change the fact that strategies for how to save money are important. The sooner you start saving, the more money you’ll have when you need it. And even a little bit can go a long way — here’s why.
Some basic math about savings
Where you put your money matters, even if you’re starting your savings from scratch. If you have a checking account at a big-name bank, it’s probably easy and convenient to also have a savings account there. But your return won’t be the same compared to high-yield savings accounts.
High-yield savings accounts offer a much-higher APR compared to regular savings accounts, usually more than 2% compared to 0.01%. Here’s an example of the difference that translates to in earnings.
|Regular Savings Account
|High-Yield Savings Account
|Balance After 10 Years
The difference in what you earn is significant: After 10 years in a high-yield savings account, your money will have earned $1,343.52 more than if you had kept it in a regular savings account.
Having money in a savings account is also a less-expensive alternative in the long run than financing your purchases. If you take out a loan or use a credit card to pay for something, you could end up paying much more than what you borrowed due to interest payments.
Beyond the fact that having some savings can not only save you money but earn you money, there are a number of other reasons saving is even more important than you may think.
The Federal Reserve reports that 40% of Americans wouldn't be able to cover a $400 emergency. Emergencies can vary in type and expense, but that doesn’t make one easier to afford than another.
If your car broke down, you had to go to the emergency room, or you missed work and couldn’t pay your regular bills, those are emergencies. But if you save regularly, you’re covering your future self against the challenges that life presents to us.
Inevitable life expenses
Not everything constitutes an emergency, but that doesn’t mean there won’t be instances where you need some extra cash.
Maybe there are some home updates you need to handle sooner rather than later. There could be a chance you owe money in taxes and need to make a payment to the IRS. What if your car, home, or health insurance rate increases?
You’ll need to adjust for those kinds of changes. Having a savings account can help you handle expenses when your income falls short.
Avoiding retirement savings is easy. We tend to believe it’s so far away that we’ll have time to catch up later. Then later comes — and we realize what we could have been saving for years.
The CFSI study found that 42% of respondents have nothing saved for retirement. How much you need for retirement depends on your income, living expenses, debt, and other financial obligations.
Avoid relying too much on programs like Social Security. Instead, begin saving for retirement by opening a retirement savings account like an IRA (Individual Retirement Account) and start stashing as much money as you can from each paycheck. See if your employer has a 401(k) option and take advantage of the company match, if available.
Whether you’re paying off your own education or want to help fund someone else’s — like a child or other relative — saving is important.
College costs are continually going up. By the time your child reaches college age, they could be looking at borrowing tens of thousands of dollars — or more — to fund their education. To avoid massive student loan debt, look into 529 savings plans, Roth IRAs, or other savings accounts.
If you’ve ever had to find a place to live quickly, coming up with extra cash to afford it probably wasn’t easy. You might be on the hunt for a new apartment and need to come up with first month’s rent, last month’s rent, and a security deposit. Or you may be trying to buy a home and need a considerable down payment. Saving for housing costs is one of the biggest ways to alleviate financial stress down the road.
Personal (and fun) goals
Planning for a vacation, a boat, or even a wedding means it’s time to start saving right now. Using other financial means, like a loan or a credit card, means your family fun could cost you even more than the sticker price due to interest rates. Save now so you can have peace of mind that you’re paying what your purchase is worth — and you don’t spend your vacation time anticipating bills.
Peace of mind
Money can cause a lot of us to worry, even if there’s nothing to fret about at the moment. The good news is that having some money stashed away can give us peace of mind regarding our finances, rather than stressing about them.
You’ll also have the freedom to make a wider range of choices on certain purchases or have the time to make more informed decisions. For instance, if you’re saving for vacation, you might have enough to take a flight overseas rather than going on an in-state road trip. Or you might be able to afford the car or home that you really prefer.
Simple tips to start saving money today
Saving money doesn’t have to be daunting. In fact, saving can be easily adjustable to your lifestyle, if you’re up for it. There are a few different ways to start saving:
- Open a new savings account: You can start small with little contributions each pay period or month. Try opening a high-yield savings account like those offered by Ally and Barclays.
- Automate savings deposits: Instead of making manual contributions, set up your accounts to auto-deduct a certain dollar amount every month. It’ll save you time and effort if you streamline your savings process.
- Pick up a fun side hustle and save that money: If your day job covers only enough to pay the bills, you’ll need to figure out how to make extra cash to start saving. Look into ridesharing, grocery delivery, or freelance opportunities for additional income.
- Buy fewer things or less-expensive options: Adjust your budget so you’re not spending more money than absolutely necessary. You can even negotiate the things that are indispensable, like car insurance, home internet, or your phone bill.
- Get a cashback credit card: If you’re going to use credit cards, at least make them earn their keep. Use a cashback credit card like the Chase Freedom or Chase Freedom Unlimited. Find one that offers the most cash back on the things you buy often, like grocery shopping, dining out, gas, or other everyday purchases.
Saving money might feel a bit overwhelming if you haven’t started yet, or if you aren't practiced in how to manage your money. Once you do, though, it’ll be much easier to follow through. Your future self will thank you.
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