Jumpstart Your Savings: How to Start Saving Money from Scratch
Did you know that saving money is a challenge for many adults in the U.S.? A staggering 35% of respondents in a recent Yahoo Finance/Marist Poll expressed they are “very” or “completely dissatisfied” with their savings. Alarmingly, 33% can’t cover even one month of bills in the event of an income loss. But don’t fret; saving money is a skill you can learn! Here are actionable steps to help you kickstart your savings journey from scratch.
Let Go of the "Perfect" Amount
Start Small
Forget the notion that you need a significant sum to start saving. Every dollar counts! Begin by saving as little as $5 or $10 a week. It may seem trivial, but consider this: save $20 weekly, and you’ll amass $1,040 by the end of the year—not to mention any interest accrued.
For inspiration, check out this article on the 52-week savings challenge, designed to help you reach your savings goals gradually.
Automate Your Savings
Pay Yourself First
Imagine a world where saving money is as effortless as breathing. The easiest way to achieve this is by putting your contributions on auto-pilot. Reach out to your HR or bank to set up automatic transfers from your checking to your savings account with every paycheck. This practice, referred to as “paying yourself first,” ensures that saving becomes a priority.
The beauty of automation? You’ll save far more over time compared to sporadic contributions. For example, if you set aside $20 per paycheck (bi-weekly), that’s over $520 saved annually—without lifting a finger!
Curious about how much of your paycheck to save? Read more in this insightful article on how much of your paycheck should you save.
Find the Right Bank Account
Choose a High-Yield Savings Account
When selecting a savings account, aim for one that rewards you for your efforts. Look for banks that offer high-yield savings accounts with no monthly fees. Currently, many accounts boast interest rates upwards of 4% APY, which is substantially better than the average of 0.41%.
For instance, placing $5,000 in an account with 4% APY would yield approximately $200 in interest over a year—essentially earning money while you sit back and relax!
Additionally, consider Individual Development Accounts (IDAs) for specific savings goals, particularly if you’re on a lower income. These accounts often match a portion of your contributions, turning your savings into an even bigger asset!
Make Smart Spending Decisions
Cut the Unnecessary Costs
Take a magnifying glass to your recent bank and credit card statements. Identify and eliminate any unnecessary expenses. Squarely focus on those subscriptions and services that you don’t utilize.
Here are some smart swaps to consider:
- Substitute streaming services for library books or free media.
- Pack lunches instead of buying them on the go.
- Shop second-hand for clothing instead of succumbing to retail apps.
How long should you stick with these changes? Set an initial goal to save an amount equal to one month’s rent, then gradually build toward an emergency fund that covers three months’ worth of living expenses. This strategy will help you avoid debt during unexpected financial crises.
Explore more tips on managing your spending in this article about 5 psychological money hacks to cut spending and increase savings.
Avoid Lifestyle Creep
Remain Vigilant with Income Increases
As your financial situation improves, temptations to spend more abound. This phenomenon—often called lifestyle creep—can lead you to spend rather than save, making it challenging to build your savings over time. In fact, nearly 30% of those earning over $100,000 report insufficient emergency savings.
How can you combat this? When you secure a raise or pay off debt, consider it a cue to increase your savings rather than your spending. For instance, if you pay off a debt that cost $150 a month, redirect that amount to your savings. Or if a pay raise increases your take-home by $200, let that boost bolster your savings instead.
Have questions on how to manage one-time financial gains, like a tax refund or year-end bonus? Use those funds wisely by adding them to your savings pot!
Now that you’re armed with these practical tips to start saving money from scratch, take the plunge! Whether you start small or automate your contributions, every step counts toward a more secure financial future. It’s time to transform your savings dreams into reality!
