You can increase savings and achieve your financial goals. It just takes a lot of patience and persistence.
A harsh lesson learned by quite a few Americans during the pandemic was the danger of not having built up adequate savings for an emergency. A recent survey found that many Americans don’t have the cash to cover a $1,000 emergency expense.
However, financial planners agree that creating an emergency fund is not that difficult. You can learn how to increase savings using three basic principles: create a budget, start small, and be disciplined.
Bankrate, an independent publisher, found that only 39% of over 1000 people surveyed could pay a bill of $1,000 or greater from their savings for an unexpected cost like an emergency room visit or car repair.
“The results echo findings from the Federal Reserve and the Pew Charitable Trusts. Both have reported that many Americans haven’t managed to stash away rainy-day savings, and therefore must rely on credit cards or borrowing from friends and family for an unexpected expense,” according to Bankrate.
Justin Buttrick, President, and Founder of Vision Wealth Advisors said the survey results come as no surprise. He also said he had seen it firsthand with clients in his career.
When it comes to potentially relying on credit cards to cover emergency expenses, Buttrick said common credit card interest rates from 16% to 22% or higher only tack on hundreds of dollars onto a four-digit cost.
Creating a Budget
Instead, Buttrick advises people to prepare by creating a budget. He also recommends setting up automated transfers from checking accounts to savings accounts with each paycheck. Treat the transfer as another monthly obligation, like a utility bill.
“The first step, in my experience, is just creating a budget. You have to know where your money is going,” Buttrick said. “Once you do it, you realize it isn’t that bad. Then, you can start allocating money towards savings.”
Potential alternatives to automated savings include calculating a set percentage from each paycheck rather than a dollar amount. Or the well-known envelope system of sliding increasing amounts of cash into numbered envelopes over the course of a year.
“The best method is the one you can stick to,” Buttrick said.
Creating a savings account separate from your checking and depositing as little as $25 a week would put someone at $1,300 within one year.
“It’s not in your checking account. You can’t see it. It’s not itching to be spent. You can easily set that up with any bank account out there,” Buttrick said.
Other options for automated savings include online apps like Acorn that allow users to round up on purchases to even dollar amounts, pushing the difference into a savings account.
Do you have any tips on how to increase savings? Share them below!