One of the most popular New Years resolutions every year is saving more money. On its own, “saving money” is quite a vague resolution. Maybe your goal is to save for emergencies, a large purchase, or starting to save for retirement. Once you specify what exactly you’re saving for, you can determine the best plan to reach your goal. No matter what your savings goal is this year, we have a few ideas on how to boost your savings. Also, if you’re in a debt management program, you can use the money you end up saving to pay off debt faster.
Saving Money in the New Year: Where to Begin
First, take a look at your overall financial picture to see where you’re lacking in savings. Do you have an adequate emergency fund? A retirement account? Is there a large purchase you’re saving for, such as a new car? For most people, the most important savings to have is an emergency fund. If you don’t have three to six months’ worth of expenses saved in an emergency fund, then you have your savings goal for the year figured out! The reason this should take priority, as we have learned in the past year, is that emergencies can strike at any time, and it is best to be prepared. The next thing on your priority list should be your retirement savings. Even if you’re only in your 20s, saving for retirement needs to be on your financial priority list. You still have decades before you retire, so you might think you don’t have to start saving now. In reality, it’s because you have all that time that you need to start now. The compound interest adds up over time, so start contributing to a 401(k) or IRA as soon as you can.
How much money should I save every month?
Most finance experts recommend saving 20% of your income every month. If you take a look at ACCC’s budgeting worksheet, you can see how this fits into your overall budget. Of course, saving that much money may not be feasible for everyone. You have other expenses after all, like rent, groceries, transportation, etc. If 20% is too much, then do 10%, or however much you can afford. Even if you can only save $20 a month towards your goals, getting into the habit of saving money is important, no matter the amount.
Where should I save the money?
There are different kinds of savings accounts, and you may want to consider how each type of savings account could be beneficial for your goals. A basic savings account through your bank is easily accessible, but it does not accumulate much interest. Interest rates for traditional savings accounts is only around 0.05%. A certificate of deposit, or CD, has a higher interest – sometimes up to 1% – but the catch is that you cannot access that money for a year or more depending on the terms of the CD. For your emergency fund, saving money in a traditional savings account makes the most sense. This is because you need the money to be readily available for, well, emergencies. It does you no good if it’s sitting in a CD for months before you can touch it. On the other hand, if you don’t want to be tempted to spend the money that you’re saving up for a big purchase, a CD might be the better option because it forces you to have self-control.
As far as retirement savings, that’s a little different. Saving for retirement is typically done through either a 401(k) if your employer offers it or an IRA if you want to open up a retirement account on your own. These aren’t technically savings accounts in the same sense because they involve investments.
Should I be saving money if I have debt?
Contrary to what some financial gurus and influencers might say, you can save money and pay off debt at the same time. These are both important parts of your overall financial health. If you only focus on paying off debt and don’t save money for emergencies, if you do have an emergency, like a job loss, you’re going to rely on credit cards to get by and accumulate more debt. Conversely, if you only focus on saving money and just pay the minimum payments on your debts, you’ll be paying a lot more in interest and that debt will be around for years. Try to find a way to balance both!
If you struggle to pay off debt, ACCC is here to help. Schedule a free credit counseling session with us today.