Power up your savings in 2021.
The events of 2020 impacted household budgets and personal finances in ways large and small, creating financial challenges for all ages and income levels. But no matter how your finances were affected, last year reinforced the importance of having a financial cushion to help prepare for the unexpected. The tips below can help you find ways to save so you’re better prepared for whatever the year brings.
Start with an emergency fund.
Setting money aside in a dedicated savings account for emergencies is one way to help protect your finances and avoid having to rely on loans or credit cards to pay a bill you weren’t expecting. Having an emergency fund can also help you recover faster from financial setbacks, like a loss of income or a large car repair bill, and help keep you on track toward your larger savings goals.
While it can feel daunting to save money if your income has been cut, saving even a small amount each month can help provide financial security and help prevent you from going further into debt if faced with unplanned expenses in the future.
Make a plan for saving.
Having a plan can make it easier to save. These steps can help you get started:
- Review your monthly cash flow, noting all of your household income sources and essential expenses (including monthly and annual), and track your spending. Knowing exactly where your money is going can show you how much you have available to save based on your current income and expenses.
- Come up with a savings strategy. For example, commit to setting aside a specific amount or percentage of your income, monthly or-biweekly, etc.
- Get into the habit of paying yourself first, before any non-essential spending.
- Create a system for making consistent savings contributions, such as automatic transfers from your checking account to a savings account.
- Decide on a savings goal to help you stay motivated. Recommended amounts to keep in an emergency fund depend on your situation, but it’s a good idea to set a goal for an amount to cover essential expenses, like housing and food, for a specific amount of time, like three months. If that feels out of reach, consider setting an achievable monetary goal — such as $500 over six months.
Boost your savings with these ideas.
You may be wondering how to find extra money to save, especially if it feels like there’s nothing left at the end of the month. But the ideas below could actually make it possible to set aside some of the money you earn, regardless of your income.
Start by examining your lifestyle and discretionary spending categories, then consider where you might be able to adjust your daily habits to trim expenses and keep more of your money. For instance:
- Reduce spending in non-fixed categories like food and utilities. For example, turn down the thermostat a few degrees; trim your grocery bill by planning meals in advance so you waste less and aren’t tempted to eat out for a quick dinner solution; check your pantry before you shop, make a list, use coupons and take advantage of your store’s loyalty program.
- Look for areas to cut non-essential expenses, especially for products and services you’re not using, like entertainment or subscriptions, or packing a lunch instead of eating at a restaurant.
- Restrict online shopping to avoid impulse purchases.
- Negotiate lower insurance rates or consider increasing deductibles in exchange for lower premiums.
- Refinance or consolidate your car, mortgage or other loans to reduce your monthly payments.
- Increase your income with a part-time job, pick up extra hours at your current job or sell items you don’t need or no longer use, such as an extra car if you’re working remotely.
- File your tax return early if you anticipate getting a refund.
- Put any extra one-time funds you receive into your savings, like a tax refund, a bonus or birthday money. While it may be tempting to spend your windfall, consider putting at least a portion of it into your emergency fund.
Focus on future financial goals.
If you’re lucky enough to have extra money each month because you’re spending less in categories like dining out, entertainment and travel, consider this an opportunity to increase your savings. Make sure you have an adequate emergency fund, then focus on saving for other goals. Consider your short-term goals, like an upcoming large purchase or a bucket list vacation, and long-term goals, like retirement.
If you’re trying to balance saving with paying down debt, one approach is to focus on paying off your balances with the highest interest rate first, while continuing to save. That way, you’ll have funds to rely on if you need them, while reducing what you owe at the same time.
Where to keep your savings.
The best place to keep your savings depends on the amount of money you have to save, your long-and-short-term financial goals, and how soon you’ll need to access your money. You may also be able to earn interest on your savings, helping your money grow faster.
- Learn more about three popular types of savings account options.
Creating a savings strategy that works for you, and sticking with it, can provide a sense of control and puts you in a better position financially to manage whatever events life brings your way, while keeping an eye on your future financial goals. For more information about saving and savings accounts, contact us today. If you are a Commerce Bank customer facing financial hardship due to the impact of the coronavirus, please call us at 833-518-3458 to discuss your current accounts.
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