Making a conscious effort to save money is difficult. Sometimes, we are too ambitious and put a significant portion of our paycheck into a savings account only to withdraw it later in the month. This begins the habit of using a savings account as a secondary checking account. Or, we completely ignore the savings account option. Only adding income to a checking account and finding yourself living paycheck to paycheck.
The problem with not having a savings account is that there are no back up funds to rely upon should an unexpected expense occur. Most people budget their expenses based on the income brought home every paycheck. Car problems or medical emergencies can completely derail the ability to pay other bills. Establishing a savings account that is reserved only for emergencies is crucial to becoming financially independent.
First, think of a savings account as “paying yourself”. You work hard, you should pay yourself before you pay anyone else. Even if it’s only $5 – $10 a month. The goal is to add enough that the dollars begin to accumulate over time, but not so much that you are unable to make payments. This could mean cutting an occurring expense and adding that amount to savings. Cutting expenses is difficult but your future self will thank you for it.
Of course, there are automated processes you can put in place to make savings more effective and efficient. See the automated options below and decide which one is right for you. You will be surprised how quickly adding a little a savings account will add up!
Does your employer offer direct deposit? This is a great opportunity to add to your savings account. Talk with your employer about sending a direct deposit of a certain dollar amount to your savings account with every pay check. Once you set it up, be diligent about not touching the money unless it’s for an emergency.
If your employer doesn’t offer direct deposit, you still can automatically save with automatic transfer through your bank. Speak with a bank teller about setting up a date every month where a certain dollar amount is taken from your checking account and put into your savings account. We would recommend lining this day up with a payday.
There is an app for everything these days and the same applies for saving account solutions. I’ve used quite a few apps, but by far my favorite is the Qapital app for several reasons. First, the savings account isn’t at my bank. When I check my checking account balance, I’m not tempted to pull any money from that savings account because it’s not visible. Second, the automatic “rules” on Qapital make it very easy to start saving money. I prefer the “round-up” rule. This is linked to my primary checking account so anytime I make a purchase using that account or debit card it rounds the purchase to the next dollar and saves the difference. Obviously, the amount is never more than $0.99 but it adds up quickly. There are also options to set a certain dollar amount to be saved every month or week. Finally, there is an overdraft protection feature that stops the “rules” if the linked bank account is below a certain amount.
Money market account
Choosing a money market savings account is another great way to make your money work for you. Money market accounts operate the same way as traditional bank accounts only they pay a higher interest rate. Meaning that the longer your money is in the account the more money it builds. Money market accounts are offered by both banks and credit unions and are insured by the FDIC (Federal Deposit Insurance Corporation). What does this mean for the account owner? Even if the bank or credit union goes out of business, your money will still be there. The rules for money market accounts are different than traditional checking and saving accounts. The minimum balance requirements are higher (sometimes $1000 – $2500) and users are only allowed a certain amount of withdrawals per month. While this sounds strict at first, it’s a great framework to build a savings account.
We would recommend starting with one of the options above to get to that minimum balance requirement then transferring your money to a money market account to start building interest. Continue to add and watch your savings build!