6 Expert Money-Saving Tips for Every Stage of Life

Businesswoman putting coin into a piggy bank.
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If you’re worried that you don’t have enough money saved to get you through the hard times that are always just around the corner, you are not alone.

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A new GOBankingRates survey of more than 1,000 American adults shows that people care more about increasing their savings than any other aspect of their financial lives. Roughly 29% of respondents to a GOBankingRates survey said they want to learn more about how to save money, which tops learning how to invest, pay off debt and increase passive income, which were the next-hottest topics.

If you’re among the nearly 1 in 3 people who care most about learning how to become a better saver, keep reading to start your journey.

Savings vs. Checking vs. Investment Accounts

The basic principle of saving is to store money you don’t need right now so it will be there when you need it later on. Whether you’re saving for an emergency or a specific goal like a vacation, savings are kept separate from the money you spend in your day-to-day life, which belongs in a checking account.

Make Your Money Work for You

“You should keep at least a month’s worth of expenses in your checking account at all times,” said John Li, co-founder and CTO of Fig Loans. “You’ll need to keep that cash base in your account to avoid bounced payments, overdraft fees, and sweating every time you swipe your card, wondering if there’s enough cash in there to cover the purchase.”

Your savings are also separate from the money that you plan to invest. Like savings, you invest money that you don’t immediately need, but unlike savings, investments come with significant risks that can lead to losses in the pursuit of gains.

Saving your money is all about minimizing risk and keeping your money safe so it will be there when you need it.

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Savings Accounts: The Gold Standard of the Rainy Day Fund

The classic savings account is the most basic and common way that people protect the money they don’t need today so it will be there tomorrow.

Make Your Money Work for You

“Once you have at least one month of costs in your checking, it’s time to move on to your emergency fund,” Li said. “Open a high-interest savings account, so your money earns a little bit of interest but remains liquid enough to be useful when you need to access it ASAP.”

It’s common for parents to open savings accounts for their children to introduce them to the world of personal finance at a young age, and people often maintain savings accounts throughout their entire lives.

Available through every bank and credit union, savings accounts are FDIC insured — you’ll never lose the money you deposit no matter what happens with the bank. Unlike some other savings vehicles, like CDs and bonds, savings accounts are fully accessible — you can pull money from them any time you like, up to a certain number of withdrawals per month.

Make Your Money Work for You

Understand How Savings Accounts Pay You Back

When you deposit money into a savings account, the bank can earn a profit by loaning that money out to borrowers. In exchange, the bank pays you a small fee as an annual percentage yield (APY).

Different banks pay different yields. They’re always comparatively small, but thanks to compound interest — which pays you interest on interest already earned — even small yields can generate significant returns over time.

If you deposited $1,000 in a savings account with an APY of 0.60% and contributed $100 every month, you’d have $13,425.95 after 10 years despite contributing only $13,000.

Get the Most Out of Your Savings Account

According to the St. Louis Fed, the national average savings account APY is 0.06%, which would be paltry even if inflation weren’t diminishing the dollar’s buying power at the fastest rate in 40 years — but you can do better than average.

Credit unions, which are member-owned nonprofits, typically offer higher yields than banks, and online banks like Ally typically offer better rates than big banks that maintain branches.

Virtually all banks and credit unions have tools that can make you a better saver. Some offer goal-based savings, which let you build savings in “baskets” — one basket might be for a new car, another for an emergency fund and another for a vacation. Others offer round-up savings, which round up purchases you make on a debit card to the next dollar and deposit the difference into your savings account.

The most important tool of all, however, is automated savings, which puts savings on autopilot without the need for self-discipline.

“To set yourself up for long-term financial success, you can set up automatic savings contributions each month so you’re paying yourself first and then spending whatever is left over,” said Brittney Castro, a CFP with Mint.

So, How Much Should I Save?

The standard advice for a healthy emergency fund is savings that could get you through three months with no income — then and only then should you start risking money in the hopes of making money through investing.

“Your savings balance should not fall below 90 days of expenses, which should be enough to cover an unexpected time period of being unemployed while looking for a new job,” said Dorothea Hudson, a personal finance expert with InsuranceProviders.com. “Your expense reserve account should maintain a balance sufficient to cover expenses in a below-average month. So if your gross average income is $5,000, and your shortfall month is on average $4,000, the reserve account should never drop below $3,000.”

Alternatives to Savings Accounts

If you’re looking for a little more money back than a standard savings account can pay, consider these options for building up your savings:

  • Money market accounts: Money market accounts are very similar to savings accounts, but they tend to pay higher yields. The tradeoff is that they often require higher minimum deposits.
  • Certificates of deposit (CDs): CDs typically pay higher yields than savings accounts, but they don’t offer the same accessibility. With CDs, you agree not to touch your money for a specific term, which can range from six months to five years or more.
  • Savings bonds: Bonds straddle the line between saving and investing. They’re like CDs in that you deposit money that you agree not to touch for a set amount of time in exchange for receiving your principal plus interest at the end of the term. They’re different, however, because when you buy Treasury bonds, you’re loaning the government money. Because they’re backed by the full faith and credit of the United States government, they’re among the safest investments on the market.

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About the Author

Andrew Lisa has been writing professionally since 2001. An award-winning writer, Andrew was formerly one of the youngest nationally distributed columnists for the largest newspaper syndicate in the country, the Gannett News Service. He worked as the business section editor for amNewYork, the most widely distributed newspaper in Manhattan, and worked as a copy editor for TheStreet.com, a financial publication in the heart of Wall Street's investment community in New York City.

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