Save money / savings advice
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If your savings account looks thin or doesn’t exist, you’re certainly not alone. It’s been reported that around 50% of people have less than three months of emergency savings, and a recent GOBankingRates survey found that a staggering 40% of women have less than $100 in their savings accounts.
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While the ability to save money sometimes depends on factors beyond your control, we spoke to several experts who offered a handbook on how people with healthy savings accounts do it.
Set a monthly budget and stick to it
While budgeting might sound like the obvious answer, according to David Frederick, Director of Client Success and Advice, it’s because it works First Bank. According to Frederick, an effective budget is your best tool for tracking how much a person or household brings in, how much they spend, and how much they can save.
“Expenditure is the variable people can most easily control,” he said.
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Use advanced savings tools
If the only tool you use to save is a savings account, you may be missing out on earning opportunities, Frederick warned.
“While putting money into a savings account is fine, there are often better accounts for long-term savings. Individuals worried about retirement should save in a 401(k) or an IRA. Individuals who are concerned about health care costs should consider saving in a Health Savings Account (HSA). Individuals who are saving for their children’s education should consider opening a 529 savings account.”
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Avoid and reduce debt
One of the most effective ways to increase savings is to reduce debt, Frederick suggested. Though some debts are hard to avoid, from mortgages to student loans, he urged people to pay off those debts as quickly and purposefully as possible.
“Additionally, harmful debt such as credit card balances and payday loans should be avoided whenever possible,” Frederick said.
Reduce lifestyle inflation
When we make more money, we tend to spend more money, a concept called “lifestyle inflation,” said Jeff Mains, CEO of Champion Leadership Group LLC, which helps entrepreneurs scale their businesses. That eats up any money we could use to save.
Therefore, make it your goal to live below your means, said Amanda Howerton, certified financial planner at RKCapital.com.
“The people with the healthiest savings accounts tend to be the ones who are really living below their means,” she said. She conceded, “That’s so much easier said than done in the age of social media and targeted marketing, so those ‘wish list’ items you casually read online are popping up in ads on a daily basis.” But this will change over time make the difference between many thousands of dollars.
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According to Brad Biren, Esq, LL.M., a tax law expert known as “DrTaxRefund.”
“Calculate what would be a reasonable amount to allocate to savings and have that amount automatically transferred to savings. That prevents you from forgetting and deciding against it.”
Set savings periods
Additionally, Biren said, “There’s a certain magic that happens when you challenge a person to achieve a goal.” In other words, savings goals are more likely to get you to your dollar amount faster.
“Assuming the goal is achievable but an easy stretch, as long as the uneasiness of the race to save isn’t too high, it’s likely to become a new habit. For example, as savers tightened or tightened their belts, they realized they could be happier with less, don’t stop them – keep it up.”
He recommends incremental savings goals over larger savings goals for more consistent success and an opportunity to celebrate success.
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Organize short-term and long-term financial goals
It can be more effective to have multiple tiers of goals, said Amanda Sullivan, a research analyst at credit donkey. “People with a healthy savings account have it for a purpose. Whether it’s a mortgage, car loan, or retirement plan, the money in their banks serves a short or long-term financial purpose.”
Most likely, they will do this using the bucket-saving strategy, which is setting aside a certain amount of money to pursue a specific goal.
Goals provide a specific reason to save, said consumer finance expert Tanya Peterson, vice president of branding Freedom Financial Network, a digital personal finance company. “When you work towards things that are important to you, whether it’s saving, exercising, kicking a bad habit, or anything else, you radically increase the chances of that happening.”
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Look for small ways to save
Smart savers generally look for small savings opportunities, Petersen regrets. “These little ways work to develop a habit of spending wisely and keeping that focus on your goals. It could be making coffee at home instead of buying expensive lattes, or hanging clothes to dry instead of using the dryer. Small things add up and apply to larger expenses too.”
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