Despite reports of a strong economy right now, many people are still finding it very difficult to build up the savings they know they “should” be setting aside. Many really want to save but don’t see a way for themselves to do it.
In Can Facilitating Emergency Savings Through the Workplace Improve Financial Security?, Prosperity Now cites the Federal Reserve data that 50% of Americans today state they would not be able to come up with $400 for an emergency (without having to borrowing or sell something). And this data included Americans from various economic backgrounds – not just lower income individuals.
As a potential solution, the article proposes employers offering a Sidecar IRA along with the 401K. The Sidecar IRA works like a ROTH, so employees could withdraw funds for emergencies without penalties. In this way, employees could build up a sort of short term savings reserve along with saving for retirement.
I can see how this is a worthwhile idea that could prove very valuable to employees. However, it’s not something in place now. And while it may be a hopeful option in the future, I always assert that self-reliance is the best way to go in achieving financial stability. We can - and should - actively work to take charge of our own savings in any way that we can.
To help do that, I’ve listed 7 ways that I used to build up a 6-month emergency fund and a healthy 401K. And the clients that I’ve worked with who are successful savers have also implemented these 7 tips in some combination or other.
Experiment to find out what works best for you. And then stick with it.
7 Ways to Save for Here & Now
1. Commit to your own financial empowerment
Change is NOT easy, and in order to develop a habit of saving you need to have a purpose. That purpose will help you persist when you falter or “backslide.” Commit to taking the action required to achieve financial independence and power.
2. Tally up your money
To be a successful saver, you need to first figure out how much you’re actually earning and spending to see where you can either a) cut expenses or b) increase your income or c) do both.
3. Decide what you’re saving for
Are you saving for an emergency fund, a wedding, Christmas gifts, etc? Most of us will typically have more than one savings goal in mind.
4. Figure out your projected savings amount
Based on when you want to reach your savings goal, figure out how much you’ll need to save each week or month (based on the minimum amount you can safely put aside regularly).
5. Open a savings account
Open a saving account online or at a financial institution that you trust. Select an institution where it is harder to get to the money quickly so that you’re less tempted to withdraw money on a whim.
6. Don’t link your savings to your checking
I always urge clients to set up their savings account separately from their checking account. Why? Because it is FAR too easy to transfer money back and forth between both accounts – effectively depleting both! Years ago, I had both accounts linked and frequently transferred money out of my savings to cover checking activity when I went over budget. Banks encourage you to do this as well, because once you’ve exceeded a set number of transfers, they charge you for additional ones. So, both account balances continue to diminish.
7. Set up recurring withdrawals
This is one of the biggest “secrets” of successful savers. Schedule automatic withdrawals timed with your guaranteed pay periods to assure consistency. Then, “Set it and forget it.”
8. Let it grow
Let your automatic withdrawals fund your account. And then “forget” the account. The longer you develop the habit of leaving it alone, the more disciplined you will become, and the more money you’ll save (with interest).
And then your savings will be there. Ready to serve you when you need it most.
What do you think? What tips have you used to help you save? What worked for you and what didn’t? Leave me a comment below. And if you found this piece helpful, please share it.
About Yolanda Ransom
Yolanda Ransom is a certified Financial Coach & Consultant who empowers clients to confidently master new money management skills, resulting in improved finances and financial stability. She is the CEO of Yolanda Ransom Consulting and provides personal finance coaching and training to individuals and groups. You can find out more about her and working with her at yolandaransom.com.