Everyone knows how important it is to regularly put money in a savings account, but research shows 25% of Americans have no emergency savings at all.
Don’t let this be you. If you’re ready to start saving, but you don’t know where to begin, we can help. Here are seven simple steps that can get you on the fast track to building your nest egg today.
Step 1: Set a goal
It’s always a good idea to work backward when setting up a plan. Take a few minutes to think over your long-term and short-term savings goals. These can include saving for retirement, a dream vacation or covering a large purchase like an RV or your first home. Make sure to assign a dollar value for each goal.
It’s important to note, when you actually start putting money into a savings account on a regular basis, it’s best to start with building an emergency fund that includes three to six months’ worth of living expenses before moving on to other saving goals. Outlining personal goals before you get started will help motivate you on your journey toward saving.
Step 2: Start tracking your expenses and income
Determine exactly how much money you need to get through each month. For three months, keep a paper or digital record of each of your expenses and all streams of income.
As you complete this step, be sure to include seasonal and occasional expenses. Calculate an estimated annual expense amount for these costs and then divide it by 12. Add this value when factoring your monthly expenses.
At the end of the three-month period, review your expenses and income to see how much money you really require to live on each month.
Step 3: Trim your expenses
If you find your income exceeds your expenses by a generous amount, you’re in a good place and you can skip to the next step.
If your expenses are greater than your income or the numbers are too close for comfort, it’s time to scale back. Look for ways to trim your expenses without feeling the pinch. Start with your biggest non-fixed expense, and move from there, cutting costs wherever you can.
The money you trimmed from your expenses can be used for savings.
Step 4: Create a budget
With your newly trimmed expenses, you’re ready to create a monthly budget. Using your list of monthly expenses and income, designate an appropriate amount for each monthly expense. Be sure to include savings in your budget—as if it were actually an expense.
When working through this step, you can go the old-fashioned route and use pen and paper for a detailed budget, or our free online personal financial management tool, My Financial Partner. You can establish realistic budgets, track spending and set financial goals.
Step 5: Choose your savings tools
With your numbers all worked out, you can move on to choosing a place to put your savings. It may be a good idea to choose a separate account for your long-term and short-term saving goals.
For long-term savings, look for a savings option that offers a better interest rate, like a CD (Certificate of Deposit) or an IRA (Individual Retirement Account) for retirement savings. Keep in mind you may not be able to open a long-term savings account immediately if you don’t have the minimum amount of funds required for the account.
Short-term savings are better off in an account that allows for easy access and some monthly transactions if needed, like a money market account.
Step 6: Make it automatic
You’ve got your numbers worked out, and if all goes well, your savings account should start growing.
Unfortunately, though, impulses can sometimes get in the way of our best intentions, holding us back from reaching our goals. Keep this from happening to your savings by making them automatic. Ask us about setting up an automatic transfer from your checking account so you never forget to feed your savings again.
Step 7: Review and adjust as necessary
Your savings plan is good to go. Remember, the earlier you start, the more interest your funds will accrue.
While you may have automated your savings, that doesn’t mean you can set it and forget it. Be sure to review your budget every now and then to check whether you should make any adjustments.
If you need help getting started, we’re here. Let us help you choose a savings account that best suits your needs.