How To Rebuild Your Savings If You Spent It All on a Down Payment

Young man is sitting at a table in his kitchen and counting the money from his piggy bank, a tall glass jar.
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Any number of circumstances, from medical bills, job loss or overspending to scrimping together a down payment on a house, can deplete your savings and retirement accounts, leaving you without a safety net for the foreseeable future.

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Regardless of what landed you in this situation, the challenge remains the same — figuring out how to stay on top of your current obligations while rebuilding your savings.

If you’re in this boat, use these expert tips to get your savings back on track.

First, Limit the Damage

It can be difficult to make sound decisions when you’re in the midst of a financial crisis, but dealing with your situation proactively instead of reactively can keep a bad situation from getting worse. “You don’t want to make any decisions from a place of temporary heightened stress that can result in long-term damage,” said Ambus Hunter, an Accredited Financial Counselor who speaks from both professional and personal experience, having lost his savings to problem gambling at 25 years old. “Stop, breathe and keep in mind that the current challenge is temporary. While uncomfortable in the short term, this is the time to center yourself so you can strategize from a place of healthy intentionality.”

Make Your Money Work for You

A good way to start is by limiting the damage. “This means not making any further withdrawals from savings or retirement accounts, and not using credit to make up for lost income,” said Michael Collins, CFA of Endicott College in Beverly, Massachusetts, and founder and CEO of WinCap Financial.

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Reach Out to Your Creditors

“Most major life events have ongoing impact beyond the emergency,” said Jay Zigmont, PhD, CFP and founder, Live, Learn Plan. “For example, if you have a medical issue, it may continue into a disability. The challenge is to determine if it is a short-term impact or a long-term impact.”

“Don’t wait for the creditors to start taking adverse actions against you,” said Nathan J. Brelsford, Esq., founder of Azeros Legal. Reach out to them to see if there are alterative payment options.

Also meet with with a financial professional to see what options might be available for your specific situation. “It is important to note that assets like retirement accounts and equity in your home are oftentimes protected from creditors’ reach, depending on your individual situation and the jurisdiction you reside in,” Brelsford noted.

Make Your Money Work for You

You should also advocate for yourself when it comes to any late fees and interest charges, especially if you have a history of on-time payments with the company. Ask if late fees or interest can be waived or reduced. Make sure you understand the terms of the payment plan — such as additional interest — and the impact, if any, to your credit report. “It might be a frustrating process and you may have to call back more than once, but don’t give up. Your future self is counting on you,” said Brittney Castro, certified financial planner at Mint.

Figure Out Where You Stand

The first step in rebuilding your savings is to take note of what you’re actually working with. How much do you have saved across different accounts? How much debt do you owe and to whom? To find out, reassess your budget and review your financial accounts to make sure you know where you stand in terms of your net worth (assets minus liabilities), Castro said.

Make Your Money Work for You

“Start making detailed lists of every monetary account,” said Ryan Cicchelli, founder of Generations Insurance & Financial Services in Cadillac, Michigan. “Information should include balances, interest rates, APRs, limits and current amounts owed for each one.” Use recent bank and account statements as a guide.

Look For Ways To Trim Your Current Expenses

You’ll be able to save more if you spend less, so see if you can find any expenses you may be able to cut back on as you rebuild your savings.

“Using either an app or a piece of paper, write out every penny that is spent over the course of a month,” Cicchelli said. “Then, go through those expenses to find out exactly where your money is going. This will help uncover amounts you regularly spend on needs, wants and ‘waste.’ Look for ways to trim needless expenses you may not have even realized were coming out or ones you know you can easily do without.”

Common examples of “waste” include unused subscriptions set to auto-pay, overpayments and bills that seem too high. “The time has come to start canceling derelict subscriptions and griping to companies about strange charges,” Cicchelli said.

“We’re likely all paying for subscriptions we don’t actively use or that have increased in their monthly cost without us knowing,” Castro acknowledged. “It’s also possible you might be overpaying on monthly payments and subscriptions like internet, streaming services, phone, and television bills.”

Alissa Krasner Maizes, a financial planner and founder of Amplify My Wealth investment advising firm, suggests contacting service providers to find alternative, less expensive choices or potential promotions and let them know you are looking for an alternative provider. “Most companies have a loyalty or retention department that will do their best to keep you as a customer.” Maizes recommends putting a reminder on your calendar for a few days before any promotions may expire so you can renegotiate rather than suddenly increase your expenses in the future.

“It pays to occasionally evaluate exactly what you need from a service and then dissect the other options available to you,” Cicchelli said. “This can be done with every service from insurance carriers, all the way down to where you buy daily impulse items.”

A number of tools are available to automate this process. For example, Mint’s Bill Negotiation tool connects you with a service called Billshark, which negotiates with vendors on your behalf. Other bill negotiation services include BillCutterz, Trim and Truebill.

Get on a Budget

Once you’ve eliminated wasteful spending, your next step should be to create a budget to manage your day-to-day finances. “This is another area people tend to neglect, but it is vitally important if you want to add more dollars to your savings every month,” Cicchelli said. “When you devise a budget and stick to it, the process creates mental checkpoints every time you think about spending money. This is a great habit to have, especially if you need a little assistance to fight impulse buying.”

Figure out how much you need to spend on fixed expenses and how much you’ll have left over once those expenses are covered. While portions of the leftover funds should be immediately funneled into debt repayment and savings, a portion can also be dedicated to discretionary spending.

“Moderation is key,” Cicchelli said. “If you tighten down too much, you run the risk of fatiguing yourself and losing sight of your goals. Remember, you are striving for better financial health, but not at the expense of living your life. You do not need to eat a strict diet of ramen instant noodles and stay home every Saturday night. Budgetary allowances for entertainment are vital. A happier, healthier you is far more likely to succeed than a hangry and emaciated alternate-reality version.”

Make Savings Goals

Whereas you might’ve have to reprioritize financial goals just to get through the challenges you experienced, now it’s time to evaluate what’s most important to you moving forward. “Is your primary goal to stow $100+ in your savings each pay period? If so, put that in writing so it feels actionable. This will help you take charge of your money and make a plan for the future,” Castro said.

“Identifying a specific savings goal (will help you) to stay focused and reduce the likelihood of withdrawing for unrelated uses,” said Valerie L. Harman, CPA, CFP, tax and financial planner for Buckingham Advisors in Ohio. “A primary savings goal should be an emergency fund of at least three to six months of living expenses.”

Maizes agrees. “Ideally, you will have an ’emergency and what if’ account funded with adequate liquid funds if an unforeseen emergency expense arises.” She suggested automating the transfer of the money to fund this account, ideally in a high-interest account separate from other accounts, to eliminate temptation to use it for anything other than an emergency.

Next, plan to get retirement savings on track. “Rebuilding retirement accounts will require more time and effort, but it is still possible,” Collins said. “One option is to make catch-up contributions to a 401(k) or IRA. Another option is to start a new retirement account if you are eligible.”

Finally, create a goal for personal savings for long-term goals like a major purchase or a vacation.

Whittle Down Your Debt

As you build savings, also prioritize paying down your debt. Generally speaking, it is always good to list out your debts in order of priority, starting with the debt with the highest interest rate, Castro said. From there, make any additional debt payments toward the debt with the highest interest rate while paying the minimum on the rest. “Once the debt with the highest interest rate is completely paid off, move on to the next highest interest rate and so on. This is the most efficient way to pay off your debt while saving the most in interest rate payments over time.on other debt, such as student loans.”

Increase Your Income

A sure-fire way to bulk up your savings is to increase your income and sock away the extra money you make. Here are some ways to do that:

Ask for a Raise — or Get a New Job

The “Great Resignation” has left many businesses short-handed, which might give workers leverage when it comes to asking for more money, whether from your current employer or a new one. Do your homework before you meet with your boss or the hiring manager from a new company — researching salary trends and identifying the value your skills can give you a leg up in the negotiation.

Get a Side Gig

What if your salary just won’t cut it? You may need to consider picking up a second job or gig work if you can handle it. “The challenge is to balance what you can handle with the progress you want to make,” Zigmont said.

“Nowadays, there are a myriad of ways to make some extra cash on the side, like selling items you don’t need anymore on consignment, working as a virtual assistant, nannying on the weekend, freelance writing, dog walking – you name it,” Castro said. “Just keep in mind the tax considerations if you do contract work.”

Look for Hidden Money

Used wisely, credit cards can be a source of free money. If you have cards sitting in your wallet, “there is a distinct possibility there could be cash back available, gift cards, flight mileage or any of a number of different incentives companies used to entice people into applying,” Cicchelli said.

Castro echoed that thought. “Scope out any credit card rewards you may have accrued over the past few years — check with your various cards to see if you can convert those points into gift cards or cash back, then apply those funds to your savings.”

Take Advantage of Financial Windfalls

Funnel any financial windfalls directly into your savings to help rebuild it faster. “Adding windfalls, such as bonus pay or a tax refund, to your savings will provide an enthusiasm boost as you see your balance grow,” Harman said.

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Gabrielle Olya contributed to the reporting for this article.

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About the Author

Daria Uhlig is a personal finance, real estate and travel writer and editor with over 25 years of editorial experience. Her work has been featured on The Motley Fool, MSN, AOL, Yahoo! Finance, CNBC and USA Today. Daria studied journalism at the County College of Morris and earned a degree in communications at Centenary University, both in New Jersey.
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