Whether you recently drained your savings accounts during a financial crisis or you are just getting started with savings, use these tips to build or rebuild them.
Pay yourself first
The secret to increasing your savings — whether it’s earmarked for your emergency fund or another savings account — is to pay yourself first. Put the money into a designated savings account before you pay anything else. Rather than trying to save the money that remains at the end of the month, put it away first—before it gets eaten up by other expenses or you’re tempted to spend it.
Tips for paying yourself first:
It's a habit. It doesn’t matter how much you are able to save every month. The important thing is making the commitment so that monthly savings becomes a habit. This single act will help you toward a healthier financial future.
Budget. Include savings as part of your spending plan. Make it a priority above spending for anything else.
Make it automatic. Use your online banking resources to set up auto deposit from checking into your savings account. You usually can set the date of the automatic transfer for the day (or a few days after) your paycheck is deposited into your primary account.
Find extra money. When you reduce or eliminate an expense, put all or part of the money into additional savings. Put any tax refund, raise, or bonus you receive into savings rather than spending it.
Find good benefits. When you look for a new job, give preference to employers who offer good benefits, such as health insurance, life insurance, matching retirement savings plans, and transportation reimbursement. The less you have to pay for these, the more money you have to save for your rainy-day fund.
Open a separate bank or savings account if you don’t already have one and name it “emergency fund”. If you find an account that earns interest, that’s even better.
As with your other savings, deposit money into the account every month before you pay other bills. Make this savings part of your spending plan and set aside the money right off the top so you aren’t tempted to spend it on something else.
If you have a true emergency in the future, such as a car repair or medical bill, tap into your fund. Otherwise, let the money grow and continue to contribute to the fund each month. Studies show that having even $500 in a savings account makes a major difference in financial well-being.
The Emergency Fund Worksheet; will help you know what you need to save to meet your expenses. Your ultimate goal is to have three to six months of living expenses set aside. This sounds like a lot, but you’ll get there by making regular contributions.
There’s real psychological power in knowing you have the funds to rely on if you encounter unexpected expenses or a job loss in the future. Think of how you would manage the crisis if you had the emergency fund available for these circumstances