There are a lot of reasons why putting a little money aside each month can be tough. Sometimes you don’t have that much to spare (or you don’t think you do). It can be a pain managing separate bank accounts. And, let’s face it, the interest rate on most savings accounts is around 1%, and that’s not exactly exciting.
Regardless of the excuses we might have, saving money on a regular basis is very important. Stuff breaks. Unexpected bills come up. If you’re not prepared for the occasional financial emergency, you could end up paying late fees, owing interest or facing some credit-damaging consequences.
According to the U.S. Census Bureau, 25% of American families and over 38% of American adults have no emergency fund or savings to fall back on. That’s scary.
If you need to start saving but find traditional savings accounts too boring, maybe you should consider one of these alternative options:
Prize-Linked Savings Accounts
The problem with sub-1% interest rates on savings accounts is that you don’t make a lot of money off of them. With the average family having a household savings account balance of $3,800, a 1% APY would net you $38 a year, or maybe enough to take your family out to dinner.
Some creative banks and credit unions have used these paltry savings account rates as an opportunity to offer their customers a chance to win something big. Most prize-linked savings accounts work by pooling those modest interest payments into a pool with other savers. You get a certain number of entries based on how much you save, and at the end of the year, someone wins the pooled interest.
Think of it as a lottery-meets-savings account. You keep all of the money you save. But your interest contributes to a windfall of cash that you have the chance to win.
People love the opportunity to win large sums of money. That’s why lotteries and casinos are growing in popularity despite the long odds. This is a win-win for people who want to save, but who also want the thrill of a potential jackpot.
Prize-linked savings accounts are currently only available in a few states (Michigan, Nebraska, North Carolina and Washington), but the concept is catching on.
52-Week Money Challenge
Perhaps you’ve heard of the “52-Week Money Challenge.” It was all over social media at the beginning of the year. If you missed the boat initially, there’s still time to catch up.
The concept works by encouraging savers to put $1 in a jar the first week of the year. Then every week, you add another dollar in addition to the first. You add $2 on week two, $3 on week three, and so on. If you follow the challenge through to its completion, you’ll have around $1,400 by year’s end.
The concept works for reluctant savers by making the initial contributions small and slowly increasing the amounts incrementally. It’s the savings equivalent of training for long distances. If you’ve never run before, you probably won’t want to start out by trying to run a 10K.
Learn more about the challenge and see how much you should pony up to get started and stay on track by clicking here.
Savings (Lending) Circles
The concept of a savings or lending circle is one that is well-known in countries like Mexico and Brazil, but might be a little new in the United States. The concept involves a small group of people that contribute a small amount on a regular basis. These contributions go into a pool, and every member of the circle collects the pool on a rotating basis.
Say you have a circle of 10 friends who each contribute $100 every month. That means that every month, one of your friends will receive a windfall of $1,000 to do what they please. The thought of knowing that every few months you’ll get a relatively large sum of money in exchange for a small investment on a monthly basis is appealing to some who don’t see the immediate need for saving regularly.
These circles work as no-interest loans or savings accounts, depending on when it’s your turn to get the pool. NPR had a great article on how these circles are helping Latino men and women save and invest on a regular basis.
If you’re looking for a way to set some money aside on a regular basis and some added peer pressure to make sure that you stick to the plan, consider starting a savings circle.
According to the credit bureau TransUnion, the current credit card delinquency rate is around 0.63%. From that, you might infer that Americans don’t necessarily have a problem paying their bills, they just don’t like to save as much.
So, if you’re used to paying a credit card or an auto loan on a regular basis, but don’t seem to be able to save, you can start making phantom payments as soon as your loan is paid off. Instead of writing a check to the credit card company or bank, write a check for that same amount to yourself and deposit it into a savings account.
It’s all about habit-forming. It’s easier to get into a good habit if you can easily transition into it.
When it comes to saving, it doesn’t matter how you do it as long as it gets done. Do you have a helpful or innovative method for putting extra money aside on a regular basis? Tell us all about it in the comments!
You can also check out some alternatives to regular savings accounts if you have a higher tolerance for risk.