By: Ashley Ann Reich
Each year, National Savings Day is set aside in October to honor those who take value in preparing for the future by saving money. Many Americans are having difficulty figuring out how to make it all work with paying bills plus saving for the future whether that is for a home, an emergency savings buffer, or their kid’s college fund. My parents always used to remind me how important a “rainy day fund” was to have someday, which I did not understand at the time, but fully understand now. As someone who teaches financial courses frequently, it has become an unfortunate commonality that most people just don’t have any money tucked away in event of an emergency. Let’s explore some simple ways to start building up your savings account quickly to give margin in your life.
Look at Your Budget
To begin good saving habits, you must take a hard look at your monthly budget. One very tangible way is to evaluate how much you are spending on subscriptions and monthly bills. There is always going to be a company out there that will provide you with similar services or coverage for a lower price. I recommend that people evaluate their monthly bills and the companies on an annual basis. When creating a budget to incorporate savings goals, it is suggested to consider the “50/30/20” method that earmarks 20% of your monthly income for savings. This will begin a routine and monthly habit of automatically setting aside a healthy portion of your income at the beginning before your money is spent.
How Much to Save
Each person needs to evaluate their savings goals and season of life. For those who are single, a smaller savings account should suffice, but for those who are married, own a home, and have children, a higher amount in savings may be needed. One article suggests a personalized savings approach that takes into consideration what you own, owe, and spend as well as your goals, concerns, and preferences. The article goes on to explain that continuing this type of savings plan throughout all seasons of life is crucial to continuing to chart the course and stay on track. Ramsey Solutions suggests that once you get out of debt, you should build up a 3-6 month emergency fund to provide a buffer for those inevitable emergencies.
Where to Place Your Savings
In today’s market, people who are trying to save money can benefit from high-interest rates due to inflation. There are many high-yield savings account options earning an annual percentage yield up to 5.15%, which is pacing at a 22-year high. One of the best parts about using a high-yield savings account versus investing your savings is that you will have access to the money quickly, but still will reap the benefits of a higher interest rate. Another viable option due to higher interest rates is the option to invest in a money market account. Money market accounts allow you some additional flexibility compared to a general savings account where you are able to write checks and make withdrawals, where a savings account is not always as accessible, which may make you more successful with actually saving the money. As of October 2023, money market accounts were paying as high as 5.25% – slightly higher than the highest APY in a savings account on the market. Regardless of where you save your money and how much you end up saving, the ultimate goal is to start saving a little at a time. You will be grateful that you have some money socked away for those unexpected car repairs, HVAC unit replacements, and medical bills without having to go into debt. From my personal experience, having an emergency savings cushion turns the emergency into more of an annoyance or inconvenience and it is a lot easier to mentally recover from the frustration of the expense occurring than it is to financially recover.