Discover pro tips and tricks for setting aside extra money.
June 22, 2019
According to the Federal Reserve Board’s 2018 Report on the Economic Well-Being of U.S. Households, 40% of Americans reported not having $400 in their emergency savings account. “People always make things too complicated when it comes to financial planning,” says Brent Weiss, co-founder and chief evangelist at the Baltimore-based financial firm Facet Wealth. However, building savings and plotting your financial future doesn’t have to be complex. Use these tools and strategies to make saving money nearly effortless.
Contribute to a workplace retirement plan.
Weiss says behavioral issues such as a lack of impulse control are at the root of many financial problems. That’s why he suggests you “hack your mind and not your money.” In other words, look for ways to put your money out of sight and out of mind to avoid spending it impulsively. One of the easiest ways to do that is by maximizing contributions to a workplace retirement plan, like a 401(k). Contributions are automatically deducted from paychecks so you never see the money, and many employers will match a percentage of employee contributions. As a bonus, employee deposits may be eligible for a tax deduction.
Allocate direct deposits strategically.
If your employer allows workers to split payroll deposits among multiple accounts, put at least a portion into savings. “You don’t ever feel it,” says Dan Hill, certified financial planner and president of investment advisory firm Hill Wealth Strategies in Richmond, Virginia. Hill says that he used a payroll deduction of $25 per paycheck to buy savings bonds over an 11-year period. That grew to $34,000 to be used for his son’s college education. Hill, who wasn’t a financial planner at the time, says there are better ways to invest than savings bonds, but people shouldn’t overlook the power of small amounts compounding over time.
Set up automatic transfers.
For those who can’t split deposits between checking and savings accounts, automatic transfers are the next best thing. Weiss recommends using online banking tools to schedule transfers from checking to savings accounts on the same day a paycheck is deposited. Making an immediate transfer can minimize the temptation to spend the money instead. Ideally, the savings accounts will have names that reflect their purpose. For instance, Weiss says an emergency fund could be called a financial freedom account. Naming accounts can be motivating and discourage you from dipping into the cash for other purposes. Moving money to a separate financial institution, such as an online bank, can make it inconvenient to access money and is another way to ensure you leave your savings untouched.
Leverage bank and credit card rewards.
Financial institutions use incentives such as enhanced interest rates or cash back offers to encourage customer loyalty. For instance, Bank of America Preferred Rewards program gives a 5% interest rate boost on savings accounts and a 25% rewards credit card bonus once account holders have a three-month average balance of at least $20,000 in combined Bank of America and/or Merrill Investment accounts. Citi also offers ThankYou Rewards points to its banking customers that can be redeemed for cash rewards, travel and merchandise. Those using rewards and cash back credit cards need to pay off their balances each month though. Otherwise, the card will cost more than it saves, says Katie Ross, education and development manager for the nonprofit American Consumer Credit Counseling.
An easy way to save money quickly is to identify three monthly payments that can be eliminated, says Aditi Shekar, founder and CEO of Zeta, a free online service designed to help couples manage their money. “I often find that we sign up for things we don’t always need,” she says. Canceling a subscription, streaming service or website membership can free up money for savings. Free apps like Trim and Truebill can help identify subscriptions and recurring payments to cancel, and for a fee, they can help you negotiate the price of the subscriptions you want to keep, such as cable, internet or wireless service.
Store loyalty cards.
Many grocery stores, gas stations and department stores offer free loyalty cards that provide a myriad of benefits. For example, the Midwest grocer Meijer has mPerks, which gives customers access to digital coupons and provides additional discounts once certain levels of spending are reached. Meanwhile, the gas station Speedway offers Speedy Rewards, in which points are earned for purchases and redeemed for fuel savings, gift cards and merchandise. And at Nordstrom, The Nordy Club offers points to be redeemed for savings and comes with perks such as free basic alterations.
Set spending rules.
Spending rules can help you be more intentional about purchases, Shekar says. Examples include eating out only once a week, getting a morning latte on specific days or buying new clothes only at the start of a new season. Though they require some discipline to follow, self-imposed rules can make it easier to say “no” to impulse purchases. Once you’ve mastered these simple spending rules, you can try a no-spend challenge, in which you only pay monthly bills and eliminate extra purchases.
Save single bills and change.
If you use cash, make a point to only use bills in denominations of at least $5, Hill recommends. Put change and single bills into a jar at the end of each day and deposit that money into a savings account each month or whenever the jar is full. Hill says people don’t realize how quickly change can add up. He says he had more than $80 in his change jar the last time he made a deposit.
Consider round-up programs.
Several banks and apps offer programs that automatically round up purchases and save the change. “Those are all good, painless ways to save money,” Hill says. Bank of America customers can enroll their debit card in the Keep the Change program. It rounds up purchase prices to the nearest dollar and transfers the change from a checking to savings account automatically. The app Acorns works in a similar way except that it invests the change in an investment portfolio or IRA. The basic Acorns service costs $1 a month. However, customers can get access to an IRA for $2 a month or add a checking account for $3 a month.
Use the right cash management system.
Money kept in a savings account at a traditional bank or credit union could be earning as little as 0.01% interest. However, online banks regularly offer 2% or more. For example, the MaxMyInterest cash management system monitors interest rates and automatically moves money to maximize how much a balance can earn. “The service has preferred rates that are higher than what is advertised in some cases,” says MaxMyInterest CEO Gary Zimmerman. “The highest rate is now 2.5%.” The service ensures money is FDIC-insured and charges a quarterly fee of 0.02% of the cash being optimized.
Rely on savvy banking apps.
The banking app Qapital allows users to set unlimited savings goals and develop rules to trigger automatic savings. “It helped me get organized around an emergency savings account (and) down payments for important financial decisions like a car,” says Josh Tammaro, a 27-year-old from Boston. “Using Qapital’s rules and goal-based savings accounts helped make saving more actionable and rewarding.” For instance, Tammaro created a rule that whenever he used the Lyft ride-sharing service, Qapital would transfer $5 toward his savings goals of a down payment on a car. A basic plan on Qapital costs $3 a month. Plans that include a debit card and investment options cost $6 and $12 a month.
Use a browser extension.
Part of saving money is spending less on purchases. The browser extension Honey will automatically look for lower prices and coupons for online purchases. Weiss uses the extension and says it works quietly in the background until he is looking at a specific item to purchase. “It immediately tells me if this is the best price,” he says. It also analyzes pricing data and lets customers flag items so they can be alerted if the price drops in the future. Honey is free to install and use.
Here’s how to save money without trying:
- Contribute to a workplace retirement plan.
- Allocate direct deposits strategically.
- Set up automatic transfers.
- Leverage bank and credit card rewards.
- Cancel subscriptions.
- Store loyalty cards.
- Set spending rules.
- Save single bills and change.
- Consider round-up programs.
- Use the right cash management system.
- Rely on savvy banking apps.
- Turn to browser extensions.