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How to maximize your savings
Use these tips to save even more of your paycheck each month.
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Saving money gives you a financial safety net and helps you secure your future. Use these six tips to maximize your savings rate, so you have even more money to put toward your dreams and goals each month.
1. Create a budget
You won’t know how much you can save until you track your income and expenses. There are several budgeting apps that will do this for you. But if you’d rather do it the old fashioned way, here’s how:
- Add up all your income.
- Add up all of your outgoing expenses each month, including mandatory expenses, discretionary spending and debt payments.
- Subtract these expenses from your income.
If you have money left over, congratulations! You have funds to save each month. If you’re in the red, this means you’re overspending and need to either increase your income or cut down on expenses until you have some wiggle room to work with.
2. Work out a savings plan
Now that you have a clear idea of your income and expenses, you can create a plan for how much you want to save each month. Take some time to think about your savings goals. Do you have any particular purchases in mind, or do you simply want to build your balance as much as possible? An effective savings plan outlines:
- How much money you need to accomplish your goal
- The timeframe in which you’ll make it happen
- How much money you’ll save each month to get there
For example, if your goal is to build up a $1,000 emergency fund in four months, then you’ll need to save $200 a month to reach it.
3. Pay off debt
If you have debt, it may be eating up a huge chunk of your income — which means you have less to save each month. Prioritize paying off any unsecured debt, such as credit cards, student loans, medical bills and personal loans. These types of debt usually have high interest rates that make it difficult to get ahead and save.
Most people use the debt avalanche or snowball method to pay off debt. We recommend choosing a strategy that works best for you.
4. Automate your savings
The best way to maximize your savings is to set aside money on a regular basis. There are several different ways to automate your savings, including setting up recurring transfers or using money savings apps. When you automate your savings, the money is out of sight, out of mind, so you’re not tempted to spend it on other things.
You can also have windfalls, such as a tax refund or a bonus from your employer, automatically sent to savings. The more money in your account, the more interest you’ll earn.
5. Be disciplined
An important part of any savings plan is working out where you can cut back on expenses. From gym memberships to eating out, there are plenty of ways you can reduce your spending and have more money left over to put toward your savings.
One of the biggest barriers to saving is the temptation to dip into your balance at any given time. If you’re the type of person who always dips into your savings, you may want to consider taking steps to make it harder to do so. For example, you could open a savings account with a different bank, so it takes longer to access your money.
6. Choose a savings account
If you want your money to work harder for you, it’s essential that you choose the best account for the job. There are several different accounts you could open:
- Savings accounts. The best savings accounts have a high interest rate, a low opening deposit and minimal or zero fees. Most people use them for emergency funds, vacation funds and short-term saving goals.
- Money market accounts. These accounts marry all the best features of a checking and savings account. You earn a high interest rate, but you also get a debit card and checks. The only downside is, money market accounts typically require higher opening deposits and you usually can’t make more than six withdrawals a month.
- CDs. Certificates of deposit lock your money away for a set amount of time. When the term is up, you can withdraw your money or roll it over into a new CD. They tend to have higher APYs than savings accounts. But if you withdraw your money before the term is up, you’ll face a penalty fee.
If you have multiple savings goals, you may even want to consider opening a couple of accounts. For example, you can open a savings or money market account for upcoming vacations and a CD for a down payment on a car you plan to buy next year.
Compare savings accounts
Use the table to compare your savings options. If more than one account catches your eye, click the “Compare” box to view them side-by-side.
Maximizing your savings rate takes time and dedication, but it leads to financial security if you stick with it. Follow these tips to boost your savings rate and accomplish your goals.
If you’re hoping to fund your goals using a savings account, compare your options to find one that’s the right fit for you.
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