I recently attended the Emerge 2018 conference from the Center for Financial Services Innovation (CFSI), and a big statistic came up again and again. 47 percent of households in the United States could not afford a $400 emergency. Considering the average car, home, and medical expense may take you well beyond that $400 point, getting your personal savings on track is vital for your financial health. If you are a freelancer or entrepreneur, you have to take your savings a step further to make sure you don’t run into big money problems during minor financial emergencies. Follow these tips to get started on increasing your savings.
Set an emergency fund goal
The first thing to do when working on increasing your savings is to set a goal. If you just try to set a general goal to save more, you will likely fall short. Setting achievable and realistic goals makes the savings process much more likely to succeed. How much you should save depends on your recurring expenses and the likelihood of running into a costly emergency.
For most households, you should save at least three to six months of expenses in a cash emergency fund. Job losses and layoffs happen, as do injuries, illnesses car accidents, and home repairs. Start by saving enough for your insurance deductibles, and grow your emergency fund until you hit the three to six-month target. If you are self-employed, increase that savings goal to at least six to 12 months of expenses.
Make savings automatic
One of the hardest parts of saving is remembering to save. Take the “remembering” part out of the equation and you are much more likely to succeed in savings. Lucky for us, there are tons of ways to make your savings automatic with modern online banking and mobile banking tools. You likely already have automatic saving built into your bank account. You just have to log in and turn it on.
Log into your existing online banking account and navigate to the transfers section. There, you should see an option to transfer money from one account to another. Most banks give you an option to make a transfer recurring. The best option is to set your recurring transfers to take place on payday. If you get paid every other Friday, set up a $20 transfer every other Friday from checking to savings, for example. Start with just $5 per week if you can’t afford more and increase it over time. $5 per week is $260 per year. Every dollar counts!
Split your direct deposit
If you work for a large employer and get paid via direct deposit, you may have an option to split your direct deposit into multiple deposits. At my last employer, for example, I could add up to three accounts for my direct deposit. I took advantage of this at my last three jobs to automatically maximize my Roth IRA contributions each year in addition to other automatic savings and investments. If you are not sure about this, contact your employer’s HR department or your manager to learn more.
To reach the maximum $5,500 per year allowed in an IRA or Roth IRA account, you’ll need to save about $211 per pay period when paid every other week. But you don’t only have to use this method to save in an IRA. You can use this method to fund nearly any savings or investment account.
Save cash windfalls
Work bonuses, tax refunds, and cash gifts are all money sources you regularly live without in your monthly budget. When you get a big cash infusion all at once, use that cash exclusively for savings (or debt payments, if you have any high-interest debt). The logic here is simple. If you make $4,000 per month, for example, and regularly live on $4,000 per month, you shouldn’t need the extra few thousand you get at once from a lump sum. So save it.
I used this method to pay off my $40,000 student loans in two years, build a giant emergency fund, and start myself on the path to early retirement through big savings and investments. If you want to quit working early, saving every possible dollar is an important step. Don’t squander a big savings opportunity!
Use a savings app
Last but certainly not least: take advantage of the many new savings apps showing up on your phone’s app store. My favorite today is Qapital, which allows you to save using a range of flexible rules. I’m currently using the app to save for a trip to Iceland and to buy my own small private plane. I’m well on the way thanks to my automation rules and automatic savings.
For example, here are four savings methods I use or have tried myself in my Qapital account:
- Round up savings – Every time I make a purchase with a linked credit or debit card, my transaction “rounds up” to the next dollar. At the end of the week, my round-ups transfer from my checking to my Qapital savings.
- Weekly schedule savings – I put $12 per week away in my plane savings fun. I’m a private pilot, but it would be a lot more fun with my own plane!
- 52-week rule – I started with $1 week one, then $2 week two, and so on for a year.
- Save $1 per Tweet – For a while, I saved $1 every time Donald Trump put out a new message on Twitter. I had to turn this off after a little too much “executive time” worried me about overdrafting my checking account!
There are other apps that do similar things, like Digit for example. But Qapital is free while Digit costs money, so I like Qapital a little more.
Save more to stabilize your financial life
Your personal finances are too important to ignore, and savings are a cornerstone to financial stability. Make it automatic so you never forget and you’ll be on track for financial stability for years to come.