If you’re just starting your journey towards financial independence, trying to save while paying down student loans, a mortgage or other debts can feel overwhelming — and many Americans are not saving nearly enough.
To make saving easier, GOBankingRates spoke to finance experts to get their best advice on how to make smart money moves.
Click through to find out how you can meet your top savings goals.
Recognize How You Feel About Money
“Start by identifying your psychological relationship to money,” said Erin Lowry, author of “Broke Millennial: Stop Scraping By and Get Your Financial Life Together.” “What’s your earliest money memory and how did it make you feel? How do you feel about money today? It’s hard to move forward with your financial life without first addressing your mental blocks and triggers. Once you truly understand those, then you can start to put systems in place that can protect you from yourself.”
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Make Building an Emergency Fund Your Priority
“Ideally I recommend that people try to save the equivalent of up to six months of living expenses in an emergency fund just to deal with unanticipated life events,” said Jason Thacker, Head of Consumer Deposits and Payments at TD Bank. “This ensures you can continue to navigate life while getting back on your feet.”
Opening a savings account dedicated to your emergency fund can help you avoid tapping into your savings when it’s not really an emergency. Keep other funds, like money you’re saving for a down payment on a home, in another savings account to keep your goals separate from your emergency fund.
Turn Time Into Money
“One trick I always like to tell people is to find more time,” said Michelle Schroeder-Gardner, founder of Making Sense of Cents, a personal finance website. “So many people think that they can’t improve their financial situation because they don’t have enough time. However, the average person watches over 30 hours of TV a week, and that could easily be put towards making more money, finding ways to save money, learning how to improve your financial situation and so on.”
Start With Saving $1,000 in an Emergency Fund
Lowry says her rule of thumb is to start with a $1,000 emergency fund if it’s just you, or $1,500 if you have any sort of a dependent, which includes a pet. “Dogs and cats can get sick too,” she said.
Once you’ve paid off your debt or gotten it into a very manageable place, you can grow your savings even more.
Create a Budget
About 22 percent of Americans feel that budgeting is their most successful area of financial management, according to TD Bank’s 2018 “Love & Money” survey.
“If you have debt, be sure to complete a budget to determine how much you can afford to put towards your debt and savings,” said Dominique Broadway, founder of Finances Demystified. “Ideally, at least 10 percent should be set towards debt and 10 percent towards savings unless you are tackling your debt aggressively. Once you knock out the debt, save at least 20 percent and increase the percentage as your income increases.”
Abide By the 50/30/20 Rule
Brittney Castro, founder of Financially Wise Women, recommends that all of her clients use the 50/30/20 budgeting rule to make sure they are allocating their money well.
“Fifty percent of net income is for fixed expenses, such as [a] mortgage, car payments and utilities; 20 percent is for your savings goals, including short- or long-term goals such as an emergency fund, vacations, home or retirement; and 30 percent is for variable expenses or the ‘fun stuff’ — shopping, gifts, clothes, etc.,” she said. “If you review your financials with this breakdown and are unsatisfied with the numbers, this is when you cut back on your spending in certain areas or get creative on how to bring in more money so that the breakdown works for you. Have fun with it. I know plenty of people that have a side-hustle so they can take that extra vacation or have extra play money.”
Spend Less Than You Earn
Being financially successful comes down to simple math, Broadway said. “It’s important to ensure you are always making more money than you are spending,” she said. If you can’t increase your income right away, look for areas where you’re overspending and cut back.
Focus on Paying Off High-Interest Rate Debt First
TD Bank’s survey asked over 1,700 Americans what their biggest barrier to meeting financial goals is, and over one in five respondents — 22 percent — said their top barrier is the stress of repaying other debt first. Thacker recommends prioritizing based on interest rate.
“Evaluate your income and savings against debts you’re obligated to pay,” said Thacker. “Paying off high-interest credit card debt provides you with a guaranteed personal rate of return [the high rate of interest you owe] that few investment and savings vehicles will ever be able to compete with.”
Name Your Savings Accounts
“Nicknaming your savings accounts is my favorite strategy to keep yourself from raiding your savings for each momentary indulgence,” said Lowry. “Be specific about what that money is for, and then you’re less likely to skim a little off the top each time you’re tempted. Instead, you’ll be confronted with ‘Quitting Day: March 1, 2019’ instead of ‘Bank Account 39234091.’ Being reminded why you’re saving helps you leave that money well enough alone.”
“Be both specific and actionable about your financial goals,” said Schroeder-Gardner. “If you want to save $10,000 in two years, then break that down to $5,000 per year, and more specifically, $416.67 per month. Now you can really take action instead of continuing to think, ‘Man, I want to save $10,000.’”
Automate Savings Contributions
“There’s a concept of paying yourself first that’s a much more efficient way to create the habit of saving,” said Thacker. “Set up automatic transfers from each paycheck to your savings account. That way, you can create a lifestyle based off of your remaining cash flow while also building up savings to support future financial needs.”
Meet With a Financial Planner
According to the TD Bank survey, 55 percent of Americans never meet with a financial advisor — but this could be a mistake, said Thacker.
“I always recommend talking to a financial professional like a banker or financial advisor for valuable counsel at least once a year,” he said. “TD Bank offers personalized service to help customers find the right match of products and services to fit their needs and help them meet their financial goals.”
Use Financial Planning Software
“My favorite money tool is Personal Capital,” said Broadway. “This finance tool can help you see your net worth, your overall financial picture and help you plan your future. Plus, it’s free.”
She also recommends checking your bank accounts daily. “It’s a great start to ensure your money is being well spent and allocated correctly. In addition, apps such as Mint, Personal Capital and You Need a Budget are great to ensure you are on track to reach your money goals.”
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Figure Out Your Savings Goals
How much you should have saved depends on the goal of your savings account, said Schroeder-Gardner. “Is it for retirement, a vacation, an emergency fund or something else?”
The TD Bank survey found that Americans’ top savings goals are “just because”/emergency fund (42 percent), vacation/travel (37 percent) and retirement (34 percent).
Schroeder-Gardner said it’s important to set short-, medium- and long-term savings goals. “Your short-term goals are what you are saving for that you may purchase in the next year. This could be a vacation, an event you want to attend, holiday gifts, etc. Mid-term goals are goals that you want to reach in the next decade,” she said. “This may include saving for a down payment on a house, buying a car or building up an emergency fund. Long-term goals will most likely be your retirement goal or paying off your mortgage completely.”
Bring Real Value to the Workplace
“Don’t be like the majority of the population that operates from a place of, ‘What is in it for me?’” Castro said.
“Instead, think, ‘How can I provide value in this situation and be of service?’” Castro said. “From that place, you clearly communicate your worth. From that place, negotiation and asking for what you need becomes a breeze because you are operating from a place of abundance, not lack. This is foundational to all other tips and tricks [for] growing your financial accounts. Providing value in every interaction will help facilitate bigger transactions as you continue on your financial journey.”
If You're an Entrepreneur, Save Even More
“Your savings account should have three to six months of expenses, and if you are an entrepreneur, the goal is six to nine months of expenses,” said Broadway.
She recommends setting a small goal first, such as having one month of savings and growing your savings rate from there.
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