I Want to Build Up Savings
Open a savings account.
Where should you store your savings? The answer is not in a mattress nor in a piggy bank nor in your checking account! Keeping your money in a savings account is important for two reasons: it’s generally harder to withdraw money from it than from a checking account, so you’re less likely to dip into it, and it will usually have a higher interest rate than your checking account, which will allow your money to grow faster. If you don’t already have a savings account, use our checklist for opening a savings account. Then come back to step two.
Build a budget.
In order to start saving, you need to know how much money you can afford to stash aside. So the first step is to build your budget. If you don’t have one yet, consider doing it now! A budget is the foundation for a solid savings plan, and we’ll even walk you through the basics of building one here. Once you can cross that off your checklist, come back to step three.
Determine how much to allocate to your emergency fund.
An emergency fund is what you’ll rely on if you lose your job or have another financial emergency. Generally speaking, it should be equivalent to at least six months of your net, or take home, pay. If you don’t yet have one, look at your budget to see how much money you can start putting toward an emergency fund every month. As you should have just read in the budgeting checklist, 20% of your budget should be allocated to Financial PrioritiesThese are expenses that help you accomplish important financial tasks, such as paying off loans, building savings, saving for retirement and more., so your emergency fund contribution should come out of that. If you aren’t saving as much as you would like, take a hard look at your monthly spending habits and figure out what you can decrease or cut out. Try our free Cut Your Costs Bootcamp to get a comprehensive plan to help decrease your expenses.
Set up automatic deposits to your savings account.
Out of sight, out of mind. In order to build up your savings, you should consider automating the process. If you don’t, you may either forget to move money over, or you may spend everything in your checking account and not have money left over to send to savings. (It’s called living paycheck to paycheck, and not only will it not be helpful for building your savings, it could leave you in dire straits should you lose your job or have a health emergency.) If you receive a regular paycheck, consider depositing money to your savings account in one of the following two ways:
If you are self-employed, we suggest depositing your earnings straight into your savings account, and then sending your living expenses, minus what you would like to keep in savings, to your checking account right afterward.
Contribute to other savings goals.
Aside from your emergency fund, you probably have more fun goals you want to save up for: perhaps a trip to the Galapagos, a kitchen renovation or a milestone anniversary party for your parents. Pick out a few goals and then play with our Get to Your Goal calculator to figure out how much you may need to put away each month to reach each of them in an ideal time frame. You can also open up sub-accounts (with fun names like “See Darwin’s Finches”) separate from your emergency account. It’s important not to co-mingle your accounts for goals and your emergency fund so you don’t start dipping into the latter.
Keep yourself motivated.
Remind yourself of what you’re saving up for by putting a picture of it on your desk or in your wallet—it will keep you motivated! A financial vision board is another very fun strategy we recommend to help get you excited about reaching all of your financial goals.
Increase your savings along with your income.
There’s wisdom in the phrase: “Bank your raise.” Whenever you get a salary increase, first calculate what your new emergency fund is, i.e, six months of your new, higher monthly paycheck. Think about sending contributions to your emergency fund until you get to that goal, then increase contributions to your other savings goals as well.
LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment, legal or tax planning advice. Please consult a financial adviser, attorney or tax specialist for advice specific to your financial situation. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies.