Life has a way of throwing curve balls when you least expect it. Events like a job loss, major car repair, or medical emergency can mean serious financial trouble if you’re not prepared.
Financial experts recommend you have at least six months’ worth of expenses set aside. This is ideal, but can seem overwhelming if you’re starting with very little. Aim to start with at least a month of expenses set aside.
Here are easy and effective ways you can start building your savings account now:
- Keep your savings in a separate account. If your savings account is linked to your checking account, or if it’s combined with your checking, you’re more likely to overspend. Keep the accounts completely separate so you’re not tempted to access your savings.
- Budget for savings. It can be difficult to save money when money is tight, but consider savings part of your monthly expenses and budget it just like you would any other expense.
- Use automatic deductions. If you have your paycheck automatically deposited into your account, you can also specify a specific amount to go towards your savings account. This way, you won't even miss it.
- Put windfalls towards savings. Every now and again, most of us get little windfalls of money. This can include overtime pay, bonuses at work, gifts, or tax returns. Instead of spending this money, put it in your savings account.
- Try the 52-Week Savings Challenge. Using a pretty straightforward concept, you can save over $1,000 over the course of a year. All you have to do is save the dollar amount of the week of the year. For example, during week one you save $1, week two you save $2, and so forth until 52 weeks have passed. By the end of the year, you'll have saved $1,378.
Saving When You're in Debt
But what if you're in debt? Because of the high cost of interest, many people believe they should pay down their debt before they begin focusing on savings.
There are mixed feelings among financial professionals about this. Luckily, you can do both. Make sure you pay more than the minimum payment on your debt each month, even if it’s just an extra $5 or $10 a month. Once you have a good cushion of money to fall back on, then you can focus your efforts on paying down your debt more aggressively.
While you’re building up your savings, you can also pay off debt by looking for ways to save money on your debt. A few ways you can do this include:
- Cut your interest. The higher your interest on revolving lines of debt, the more money you pay towards interest instead of principal. You can cut your debt costs by trying to negotiate a lower interest rate on your current lines of debt. Improve your credit score. High interest rates are often the result of low credit. Improve your credit score by getting your accounts current and paying all bills on time. A secured credit card is also a good way to improve your credit or establish nonexistent credit.
- Pay attention to credit card offers. If you have a balance on high interest credit cards, consider transferring them to a 0% introductory rate card. Most of these offers include no interest for a year, so your entire payment goes towards your principal. If you do this, be sure you can pay the balance off within the interest-free period.
Building up a savings account—even while paying off debt—is not as hard as you might think. Make savings goals and stick to them, and you’ll be surprised at how quickly your account grows.