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Having a savings account with money in it is really personal finance 101. But it isn’t as simple as just chucking some money into the account and forgetting about it. Instead, here’s why saving should be an active and goal-oriented process.
Set goals for your savings
Taking the time to think about why you’re saving can be the best way to maximize the money you’re putting into your savings account. If “saving money” is a nebulous thing for you and you’re not actually considering how that money can improve your life, it’s going to be a lot harder to stick to a savings plan — or even get started with one.
I’ll use myself as an example here. I decided a little over two years ago that I wanted to become a homeowner again (after swearing for years that I’d never do it again). Step one of my plan to make that a reality was getting out of debt, but after I did that, I was ready to start saving money.
Before I set my ambitious goal, I thought about what was possible based on my income and commitment to following through. Then I broke down the big goal into smaller weekly amounts, which made the whole process a lot easier to consider. If I hadn’t taken the time to think about how much I wanted to save, how much I actually could save, and what the money was for, I would have struggled to meet the goal.
How can you implement this technique?
If you’re getting ready to make savings a higher priority in your life, I recommend doing the same. Let’s say you want to save up an emergency fund so you’ll have the cash on hand to get you through a period of joblessness or a surprise bill. Consider how much your monthly expenses are (perhaps run them through The Ascent’s emergency fund calculator), and decide how much you want to save — experts recommend three to six months’ worth of bills.
Then break that goal down even further. How much do you need to save every week or month to reach a fully stocked emergency fund? Is that achievable for you, or do you need to increase your income or perhaps cut your spending to keep more money in the bank? Now you can create a roadmap for saving success.
Other ways to make saving easier
I recommend adding a few other ways to maximize your savings, including:
- Open a high-yield savings account: Not all savings accounts are created equal. According to the FDIC, the average savings account APY (annual percentage yield, or how much you’ll earn in a year) is just 0.47%. But that’s only an average — check out our list of the best high-yield savings accounts and you’ll find accounts paying 10 times that or more.
- Automate it: If you don’t have to think about moving money from your checking account to savings, you don’t have to worry about forgetting to do so. Making savings contributions automatic is a good way to help ensure success with the process.
- Lean on sub-accounts: One of the best things about my own high-yield savings account is that I can open up to 30 sub-accounts within the main account and set separate goals for each. I use these for all kinds of goals, from vet visits for my cats to international vacations. Being able to separate your savings for different goals will make the process easier.
If you’re in a position where you earn enough money to be able to save, you are fortunate indeed. Be sure to set goals for your savings, and use the other tips above to maximize your efforts.
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