Building savings isn’t as easy as it should be.
With little cash at the end of the pay period, coupled with other financial obligations like debt, loans and bills, building significant savings can be tough.
It’s an important financial step, most financial experts agree, and can be accomplished with a sound strategy and a lot of discipline. Here are four ways to build savings:
Consider yourself a creditor
No one enjoys paying bills each month, but it’s a fact of financial life. Ignoring bills will hammer your credit report and the ability to buy on credit, including renting an apartment or buying a home. You’d also lose conveniences such as electricity, water, Internet access, cell phone service and cable TV.
In reality, ignoring the urgency of building savings has the same very dire consequence, yet very few people realize the need to make it a priority until disaster strikes.
Consider the shift in the collective American consumer consciousness in the midst of a “bursting” housing bubble and financial crisis: The personal savings rate among Americans reached nearly 9% in early May of 2008, a level not seen since 1985, according to data reported by the U.S. Department of Commerce.
Unfortunately, the fear of living on borrowed cash appears to have waned. Today, personal savings rates are back down to about 4%.
Financial experts recommend that all people, regardless of age or income, have at least six months worth of income saved.
Act like a creditor when it comes to savings, and demand a reasonable amount of money from each of your paychecks until you reach your goal balance. Your credit card issuer doesn’t require that you pay your balance in full each month, but you must make a minimum payment on what you owe, until the debt is resolved.
Likewise, saving $10 a paycheck may seem ridiculously far away from reaching six months of your income, but small steps are the key to building. Over time, $10 grows into $1,000, and beyond.
Dictate a clear road map to savings
Scrapping your savings goal to grab lunch with co-workers is too easy when you’ve got no strategy in place, so give yourself a continual reason to choose the path of savings when you’re faced with temptation.
Calculate exactly what six months of your income is, and write it down in a place you can visit regularly, whether you store it in your phone or on a scrap of paper in your wallet.
As you contribute to savings, keep a running deduction of your progress, little by little. Instead of scratching your head in five years still wondering where your money has gone, you’ll be sitting on a hefty emergency fund, and filled with the confidence and peace of mind that true financial security provides.
Start small to building savings
Saving is not about being so frugal you’re unable to enjoy life, but recognizing opportunities to control your life.
Remember that anything of significant value, whether a car, a career, a home, or a human being, started from nothing once upon a time.
Let’s face it: Building savings can be a stressful, unpleasant experience, and especially when there’s little to spare, it can feel like you’re not doing “enough” to amount to anything worth the pain it takes.
[pull_quote align=”left”]Saving just $1 a day amasses more than $365 a year. Even stashing away just 50 cents a day will transform into $180 in a year, and you’ll never even notice its been removed from your life.[/pull_quote]Instead of feeling strained by saving, use it an opportunity to feel empowered. Take control of every opportunity you can seize, regardless of how small, that will get you one step closer to controlling your financial life. For example, saving just $1 a day amasses more than $365 a year. Even stashing away just 50 cents a day will transform into $180 in a year, and you’ll never even notice its been removed from your life.
Don’t be a loyal banking customer
Though you likely won’t find savings account interest rates will make you rich in the current rate environment, there are bank accounts that pay for your business and charge you nothing in return. In short, that’s the only kind of institution you should build savings with.
If your current bank requires a minimum balance, charges for transactions, or pays anything less than .90% APY, it’s time to shop around. You may find some attractive options at a local bank or credit union, but typically, online bank accounts offer more competitive interest rates for saving.
Smarty Pig currently offers 1.00% APY on deposits, and requires no minimum balance. Online savings institutions typically make it easy to establish ongoing direct transfers from a checking account with another lender into a savings account, so you don’t even have to think about saving.
Perhaps the most effective aspect they offer in building savings is a lack of immediate access. Withdrawing money from an online savings account can take up to 48 hours, making it impossible for you to swing by the ATM, and erode your savings on an impulse.
Another important part of building savings is cutting unnecessary costs. And having a low credit score can cost you thousands (generally a lot more) over your lifetime. The good news is you have the power to raise your score and build good credit. Click the link below to find out how.