How to Save Money Everyday
Be penny wise when it comes to saving and avoid pound foolish actions that lead to debt.
We get it – saving money is usually easier said than done. When you compare the money you have available to save now versus how much you need to accomplish major financial goals in your life, the task can seem so daunting that you’re unmotivated to even try.
On the other hand, you’d be surprised just how fast savings can add up when you’re dedicated about saving money everyday in your budget. A few dollars here and there can become big money when its set aside effectively and put into the proper savings accounts. So even though it may seem like an uphill battle, the hardest part of developing an effective saving strategy is really taking the first steps to reduce costs in your budget so you can set aside as much money as possible each month.
Making sure savings are used effectively
The video above – and other upcoming videos in the Penny Wise, Pound Foolish series – lay the groundwork for how to find extra cash in your budget and avoid overspending so you can save as much as possible. However, setting the money aside is really just first step in developing an effective saving strategy.
In other words, if you’re just diverting all the money you set aside into a standard savings account with an interest rate of less than .05% then you’re really not saving effectively. Instead, you need to organize your savings and allocate it for specific purposes. And at least some of that money should be diverted into savings and investment tools that grow at a faster rate so you can actually save effectively to achieve your long-term goals.
So let’s say you make $3,000 per month after taxes. In an ideal financial world, you want to set aside 10% of that income every month, so you save $300 every month. With a strategic saving strategy you might divide that money thusly:
- $100 is transferred to a Roth IRA to support your retirement goals
- $50 is put into your regular savings account to get pooled in with your financial safety net or rainy day fund for emergencies and unexpected expenses
- $50 is put into holiday savings account so you can have a cash-only Christmas without credit card debt
- $100 is put into a Money Market Account, which has a higher interest rate than your standard savings account
Money Market Accounts (MMAs) are like savings accounts, except they have higher minimum balance requirements – usually at least $5,000. However, that higher requirement means you get better growth because the interest rate is higher. So you have to maintain a high minimum threshold, but this can be a better option for mid-term savings.
Additionally, once you save enough money in your MMA you can take a portion of that out while still maintaining the minimum balance to put into an investment with even more growth. So, for example, once you have $7,000 saved in the MMA, you can take out $1,000 and put it into a 1-year CD.
CDs (Certificates of Deposit) are investments that you open with a set dollar amount that you can’t touch for a specific period of time. At the end of that period, you get the money you invested back plus the interest earned. They can be a great way to set money aside for specific big goals. For instance, you know you want to buy a car next year, so you take out a 12-month CD and then use all of the money you receive next year to make the biggest down payment possible. This will give you a little extra for the down payment than you would have if you’d just left the money in regular savings account until you were ready to buy.
For more information on how to use savings effectively, visit Consolidated Credit’s Guide to Saving. And remember, if you’re having trouble saving effectively because of credit card debt, we can help. Call Consolidated Credit today at (844) 434-0351 or complete an online application to request a free debt and budget analysis from a certified credit counselor.