We all want to save more, but starting your savings may feel overwhelming at first. How much do you need to save? Where will you find the extra money each month?
Let’s start with how much you should save. A good rule of thumb is to put away 10 percent of your income each month. While that may sound challenging, you can reach your savings goals if you follow just a few basic steps.
The simplest way to grow your savings is to set up an automatic transfer from your checking account to your savings account. This will ensure that a portion of your earnings will go toward your savings without your having to think about it.
Try starting small. Set up an automatic transfer from your checking account to your savings account that puts aside 5 percent of your monthly income. This will guarantee that you are allocating a certain portion of your paycheck from your checking account to your savings account each month.
Starting with only 5 percent will allow you to get a sense of how bringing home less of your paycheck each month will impact your monthly expenses. Review your finances at the end of each month and transfer any additional funds to increase your savings.
If you continue to have extra funds to set aside each month, it may be time to increase the amount of your automatic transfers to 10 percent of your income or higher so that you can build your savings even faster.
You can also increase your savings by utilizing a savings account with a higher return. On average, savings accounts in the United States provide a 0.06% interest rate. Switching to a high-yield savings account with a 0.61% Annual Percentage Yield (APY) can make your money work harder for you. If you invest $10,000 over 10 years, the 0.61% APY account will help you to earn nearly $570 more than the average account.
Reach Your Savings Goals
The first milestone you will want to reach with your savings is the establishment of an adequate emergency fund. While it may be unpleasant to think about such possibilities as an illness in the family or the loss of a job, being financially prepared for such events can truly help to relieve stress if they should occur. An emergency fund should provide you with at least three months’ worth of living expenses to protect you from financial hardships during difficult times.
Be sure to include all of your necessities such as car payments, insurance, rent or mortgage payments, and your average weekly grocery bill when compiling your monthly living expenses.
With an automatic transfer from your checking account to your savings account, you will be able to reach this milestone in no time and can start saving for other things.
An important part of your savings plan is to make sure that you know the purpose of your savings. Once you have your emergency fund set, you can start to distribute your savings to other funds.
Build your retirement savings by putting money aside in an IRA or your company’s 401K. With a sufficient emergency fund, you can begin to transition the majority of your automated deposits to this account to help ensure that you will be comfortable later in life. Keep in mind that these funds will likely be unavailable until you reach retirement.
Looking to make a big purchase, like a new home or car? Start your savings the same way. It may be easier to monitor your progress by opening a separate account specifically with that savings goal in mind. Just as with your emergency fund, review your finances and decide how much of your income you can afford to transfer each month.
Set up your automatic transfer from checking to savings with Bank of Internet USA and begin growing your funds today.