The fact that Americans are pretty terrible at saving money is probably not a surprise to a lot of you. Here are three pretty staggering statistics that illustrate how bad we are as a country at squirreling away money for a rainy day.
- 25% of Americans have no savings at all, according to the United States Census Bureau.
- Over 2/3 of Americans are living paycheck-to-paycheck (but most people feel good about their financial outlook) says a study commissioned by Bankrate.com.
- NerdWallet suggests that Americans save somewhere south of 4% of their disposable income on a regular basis.
USA! USA! USA!
Enough with the shaming, though. It’s time to stop feeling bad about your paltry savings rate and start doing something about it.
In addition to simply being a good idea to have money available in case of emergencies, there are plenty of life-changing events that will happen during your time here on Earth.
These things cost money.
The good news is that saving money is easy, and if money is tight, you can probably cut back on a few things for the greater good. Here’s how to set up a weekly savings plan that will get you well on your way to reaching your financial goals.
Step 1 – Identify a Purpose
Whether it’s something long-term and abstract like retirement, or short-term and immediate like a trip you’d like to take, the first step is to identify your goal.
While babies, diplomas and weddings are great things to save for, you also need to make sure your household has a nice rainy day fund.
Just think – if you lost your job tomorrow, would you be able to absorb the financial stress of having less money come in?
Step 2 – Set a Goal and Method
When setting a savings goal, you need to keep two factors in mind: time and amount. These factors will obviously dictate how much you’ll have to save each week in order to reach your goal. It will also influence what tools you might be able to use in order to reach it.
For the purposes of this example, let’s use a household rainy day fund as our savings purpose. After taking a look at your income and bills, you need to land on a goal amount that is both meaningful and attainable.
A savings plan is a lot like a workout plan. Set the bar too low, and you’re not really changing your behavior in a meaningful way. Sure, every little bit helps. But you want to teach yourself the importance of financial fitness, and throwing your loose change into a jar doesn’t really do that.
Set the bar too high, and you’ll almost always burn out too quickly. If you try to save too much, too soon, you could end up frustrated with the concept and quit altogether.
Say you want to save $2,500 in the next year to have in case of an emergency. This means you’ll have to save approximately $50 a week for the next 52 weeks.
How are you going to do that?
Since it’s a (relatively) small amount and a long time period, you probably won’t need to think about using a brokerage account or other potentially higher-risk investment tool to reach your goal. True, you might exceed your goal if the markets are favorable. But a bad year on Wall Street could wipe out your emergency fund entirely.
In this case, you’d better stick to a savings account, or even a Certificate of Deposit, to safely house your money and reach your goal with little to no risk. Longer-term and higher goal amounts will likely require the use of investments that offer better rates of return, giving you both the chance to grow your money at a robust rate of return and enough time to weather any potential economic storms that could cause economic setbacks.
Step 3 – Contribute to Your Plan
Here’s where the proverbial rubber hits the road. By now you know what you’re saving for, what your goal amount is and how much you need to save on a weekly basis to reach your goal.
The first thing you’ll want to do is create a new bank or investment account for your goal. Keep it separate from your everyday banking or brokerages so you can keep better records and resist the temptation to dip into it.
If you’re like most people, saving $50 a week is lofty, but doable. There are lots of things you can do to trim your expenses and contribute toward your savings goals. This Zing article teaches you how to pay off your mortgage sooner by changing some of your eating habits. You can also use these tips to find extra cash to save.
Once you find the leftovers, add them to the account you opened and watch your account grow.
Step 4 – Make it Automatic
The best way to save is to not have to think about it at all. If you have to physically deposit money every week or remember to log in to your bank’s website or app, there’s a lot of opportunity to get distracted.
Set up automatic transfers from your checking account to the savings or brokerage account you opened for your goal. Consider a payroll deduction if you have automatic deposit of your paychecks.
Been there, done that? Check out these four alternatives to make saving for any occasion more entertaining and more regular.
You can even use cool new tools like Acorn, an app that rounds up all of your debit and credit card purchases to the nearest $1 and deposits the difference into an investment account automatically.
Armed with these four steps, a few tools and the discipline to make a positive change to your financial habits, you should be well on your way to saving for anything life throws at you.