One of the most important lessons many people have learned this year from the coronavirus pandemic is the importance of saving money. We never know when an unexpected crisis like the pandemic might emerge that throws a wrench into our best-laid financial plans.
In this respect, the timing couldn’t be better for National Savings Day, which occurs on Monday, October 12. On this day, Americans are encouraged to think about their saving and spending habits and steps they can take to save more money.
Beef Up Your Savings
If you’re not saving as much money as you’d like, there are some steps you can take to beef up your savings. Consider these 5 ideas:
- Set savings goals and create a savings plan. Your savings goals should be specific, measurable and realistic. For example, you could set a goal of saving a certain amount of money each pay period or month or saving a certain percentage of your income, like 10 percent. Don’t be too aggressive with your savings goals — if they’re unrealistic, you might get discouraged and give up.
Once you set a realistic savings goal, devise a plan for how you’ll achieve it and write your plan down. If you want to save 10 percent of your gross income, for example, how are you going to accomplish this? It might require eating out at restaurants less often, avoiding going on shopping binges or unsubscribing from emails and texts you receive from online retailers. Write these things down and keep your plan in a place where you can look at it often.
- Take advantage of employer matching opportunities. Many employers match contributions employees make to their retirement savings plans, like 401(k)s. If so, this is the closest thing you’ll ever find to “free money.”
For example, if your employer offers a 50 percent match on your 401(k) contributions, this is the equivalent of an automatic, no-risk 50 percent return on your money. So if you contribute $1,000 per month to your 401(k) account, your employer will contribute an additional $500, bringing your total monthly contribution up to $1,500, or $18,000 per year. In 2020, you and your employer can contribute up to a combined $19,500 to your 401(k) account, or $26,000 if you’re 50 years of age or over.
- Automate your savings. One of the best ways to increase savings is to make it automatic by having money electronically transferred into one or more savings accounts each pay period or month. Sometimes referred to as “paying yourself first,” this removes the human element of saving since you no longer have to consciously make the decision to save.
If you participate in a 401(k) plan at work, this is probably how your contributions are made. Even if you don’t, you can still use this strategy by arranging for money to be automatically transferred into a money market account or Individual Retirement Account (IRA) each pay period or month. You might be surprised at how quickly your savings start to add up.
- Look for inexpensive or free entertainment options. Entertainment doesn’t have to cost a lot of money — there are plenty of low-cost and even no-cost ways to have fun. For example, many cities offer free admission for local residents to museums and art galleries on certain days of the week. Some state and national parks also don’t charge an admission fee. Also look for theaters and restaurants that offer early bird and happy hour specials — you might be able to save up to half the price of “dinner and a movie” if you’re willing to get an early start.
- Use the envelope method. This is an old-school savings method that’s still effective if you can make a commitment to it. Here’s how it works: You’ll withdraw cash to pay for various expenses and put it in labeled envelopes so you have it when the expenses come due. This strategy often works best when saving money for a certain goal, like going on a vacation or buying a big-ticket item.
Make Saving a Habit
By implementing strategies like these, saving money can become a habit. This is one of the best ways to help ensure a financially secure future and prevent an unexpected future crisis from wreaking havoc on your personal finances.
Give us a call if you’d like help implementing these and other savings strategies.