Around 3 in 10 Americans say they have no emergency savings, and 8 in 10 say their savings wouldn’t last them 6 months.
This may sound daunting, especially if you're one of those people, but saving money doesn’t have to be so difficult.
Here are 10 simple ways you can boost your savings in 2023.
1. Create Your Own Savings Rules
If you’re like most people, then just thinking about your desire to start saving won’t actually do anything. On the other hand, writing down your savings goals will make you much more likely to stick to them.
The Consumer Financial Protection Bureau offers a free template where you can write down your personal savings rules.
The process involves 3 steps:
- Setting a savings goal that works for you
- Creating a rule to live by to help you achieve your goal
- Making a promise to yourself to take action
2. Set SMART Goals
- Specific. Be clear about what you want to achieve.
- Measurable. Quantify your goal with a number or numbers.
- Achievable. Ensure the goal is realistic.
- Relevant. Ensure the goal is worthwhile and that now is the right time for it.
- Time-Bound. Set a deadline for achieving the goal.
Saving money is not a SMART goal. Setting up a $20 direct deposit from your salary to your savings account every two weeks is a SMART goal.
3. Start an Emergency Savings Fund
If you’re just starting to build up your savings, then the first priority should be starting an emergency fund. You never know when you might face an unexpected expense such as a medical bill or car repair. Dipping into an emergency fund for such expenses is better than going into debt.
The best place to store your emergency savings is in a savings or investment account, preferably one you can withdraw from at any time without any penalties.
How much money should you have in your emergency fund? Lots of different numbers get thrown around by the experts, from $400 at the low end to six months’ worth of income at the high end. Economists Emily Gallagher and Jorge Sabat examined this topic using a statistical model. Their answer: $2,467 in savings is enough to put you at low risk of falling into financial hardship.
4. Start a Direct Deposit into a Savings Account
We’re all busy, and we don’t have time to remember to deposit money into a savings account, right? Fortunately, there’s a simple way to make sure a percentage of your income goes into savings: a direct deposit.
Step 1: Set up an online savings account.
Step 2: Create a direct deposit for a fixed amount from your paycheck into your savings accounts.
The more you put into your savings account, the more interest you earn. And, thanks to the miracle that is compound interest (interest on interest), your earnings will increase every month and year.
Let’s say you put $1,000 in a new savings account and set up a direct deposit of $50 per month. At annual interest of 2.3%, you would earn:
- $30.77 in year one
- $45.54 in year two
- $60.44 in year three, and so on…
5. Use Your Tax Refund
Tax filing day is coming up on April 15 – a date most Americans dread because of the paperwork involved and the fact that no one really likes paying taxes. But for many American taxpayers, there is a silver lining: a tax refund. If you receive a tax refund this year, don’t let it go to waste. Deposit a portion of the tax refund into a savings or investment account for a big one-off boost to your savings.
6. Plan for Retirement
Once you have enough money in your emergency fund, it’s time to start thinking about longer-term savings goals – like retirement. It’s never too early to start thinking about retirement, even if you’re fresh out of college and just accepting your first paycheck.
The 2 most common forms of retirement account are:
- 401(k) plan: a company-sponsored retirement account where your employer matches some or all of your contributions.
- IRA: an individual retirement account that you can establish through a broker and pay into on your own.
Most retirement accounts offer tax advantages. The IRA website offers a full list of retirement accounts.
7. Set up a 529 For Your Kids
Mortgage aside, the biggest expense most Americans will ever face is college tuition fees. If you have kids, then the good news is you start saving for college with a tax-advantaged savings plans such as a 529 plan.
There are 2 types of 529 plans:
- Prepaid tuition plans: Lets an account owner purchase units or credits at participating colleges or universities for future tuition for the account beneficiary.
- Lets an account owner open an investment account to save for the account beneficiary’s qualified higher education expenses or tuition for elementary or secondary public, private, or religious schools.
8. Save as a Family
Speaking of kids, it’s never too early to start teaching them about financial responsibility. You probably had a piggy bank or received money from the ‘tooth fairy’ when you were young, so why not do the same for your children? As your kids get older, there are other ways to teach them to save, such as opening a savings account for them or letting them participate in managing the family budget.
9. Pay off Debts
It might sound counterintuitive to say you should spend money to save, but this is certainly the case when what you’re spending on is debt payments. Think about it this way: the most interest you’ll earn on a savings account in 2023 is probably around 2-3%. The lowest interest you’ll pay on credit card or personal loan debt is 15-20%. Therefore, it’s best to use spare money to pay off long standing debts before putting money into a savings account. You could even use a short-term personal loan from a top provider in order to help you do this.
Also, paying off debts will have the knock-on effect of improving your credit score, putting you in a stronger financial position.
10. Shop Around for Savings Account
If you’re planning to open a savings account in 2023 – or even if you already have one – it’s always smart to shop around.
Here are a few things to look for when comparing regular savings accounts, CDs, IRAs, or any other kind of investment account.
- Interest rates. The higher the better, obviously!
- Monthly fees. The lower the better.
- Minimum balance. Are you supposed to deposit and maintain a certain balance to qualify for a good interest rate?
- Ease of use. Does it allow direct deposit, automatic transfers, or mobile check deposits?
- Ease of withdrawal. How quickly can you access funds when you need them?
Every Dollar Counts
Saving money is kind of like finding free time. After getting through all the things on your daily to-do list, it can seem hard to find time for yourself. And after paying off all your monthly expenses, it can appear difficult to find money to put away in a savings account.
We find free time – even if only for a few minutes – because it’s necessary. Likewise, it’s worth putting some money aside for savings every month – even if only a few dollars each time – to prepare for the future.