Money Management Series
Savings Strategies: Part 2
People who have a savings plan are more likely to save than those without. Strategies for Saving – Part 1 encouraged you to assess your financial situation and commit to developing a savings plan. Below are strategies to help you get started with your own personal savings plan.
Pay Yourself First (PFY)
Paying yourself first is one of the most important strategies when developing a savings plan. When you save first you have less money to spend. First assess your spending, then decide how much money you can realistically pay yourself, next align this amount with your financial goals and finally adjust as needed. List savings as a fixed expense in your monthly budget. This will help you get you in the habit of viewing this category as a regular expense. You are less likely to spend money you have designated for a particular category like savings.
Save Money Automatically
This savings strategy can be quickly and easily set up through a financial institution. Each month you can have money transferred from a checking account into a savings account. This process can be set up to occur at regular intervals such as weekly, bi-weekly or monthly. When you don’t see the money you are less tempted to spend it. Millions of people use this method to save for retirement.
Start an Emergency Fund
This is a fund for, yes you guessed it EMERGENCIES! This is a separate savings account that you want to manage in a way that cannot be readily accessed like other accounts. This will ensure that you will have the money when you need it the most. You want to have at least $500 in this fund. Start saving for this fund with small regular contributions that will add up to your emergency fund goal. Not having money for emergencies is one of the many reasons people borrow money, and fall victim to high interest loans. Consider using a tax refund or annual bonus to jumpstart your emergency fund. Having an emergency fund will give you a peace of mind knowing that you can handle an unplanned emergency and that is priceless!
Pay off Debt
Start tackling debt as soon as possible. There are two popular methods of getting out of debt – debt snowball and debt avalanche. The debt snowball method of repayment involves first listing debt from the smallest amount to the largest amount. You will then pay the minimum amount on each debt. Next you will put any extra money towards the smallest debt until it is paid off. Once the smallest debt is paid off, you will then put any extra money towards the next smallest debt. Finally, you will repeat the process until all debt is paid off. The debt avalanche method is similar but involves first listing debt from the smallest to the largest based on interest rate. You will then pay the minimum amount on each debt. Next you will put any extra money towards the debt with the highest interest rate until it is paid off. Once the debt with the highest interest rate is paid off, you will then put any extra money towards the debt with the next highest interest rate. Finally, you will repeat the process until all debt is paid off.
Save for Retirement
Saving for retirement now will help ensure that you have enough money to live comfortably when the time comes for you to leave the workforce. It is never to early or too late to start saving for retirement. The earlier you start saving for retirement the better, however, saving for retirement is important at any age. You can explore retirement options through your place of employment and through your financial institution.