Building savings is equally as vital as learning to invest. Investing is a sure way to plan for a comfortable future, but having savings gives you the necessary safety net in the event of a financial emergency. Luckily, you don’t need to have a high income to build an emergency savings. There are ways to plan for the unexpected, even on a small budget. Here are some “do-able” tips to reassess your budget and to help you kickstart an emergency savings:
- Set automatic deposits. The easiest way to save is to set up an automatic transfer from your checking account into a savings account after you get paid. Not only does this ensure that you don’t see the money, but it also means you’re growing your savings at a steady rate.
- Divide your income. The amount you should be saving will depend on your budget and your goals, but a good rule of thumb is to try to save 20% of your income every month, whether or not you’re also trying to pay off debt. This will leave enough room for other expenses, while also ensuring that you grow your savings consistently.
- Try to live on last month’s income. It’s important to have at least 3 months of expenses, including rent. This will ensure that everything will be alright if an emergency occurs.
- Set a savings goal. It’s hard to save unless you have something specific to work towards. Whether it’s an emergency fund, down payment on a house or just enough to get you through the holiday season, having a goal in mind makes it easier to put money away.
- Keep track of your spending. If you’re not sure where your money is going or what your budget should look like, write down all your expenses and review the numbers at the end of each week. This will help you see where your budget needs improvement and make any necessary adjustments.
- Keep track of bank fees. Bank fees can pile up quite quickly. Try to avoid NSF fees (non-sufficient funds) and any other related bank charges that can be avoided.
- Watch out for convenience fees. It’s tempting to use an ATM that isn’t part of your bank’s network when cash is needed right away — but convenience fees add up fast. Try to avoid these fees
- Keep track of your bills. Paying your bills will give you oversight on how much you really have.
- Set up a budget. It’s important to pay yourself and set aside disposable income. Without budgeting, it’s hard to avoid sporadic spending. You can use Microsoft Excel or download any budgeting app to get started.
- Be realistic. Set realistic expectations and have your goals in mind. Don’t starve yourself or hinder your health for the sake of saving money. Be strategic and always follow the plan.
- Stay consistent. Whether you’re saving $10 a month or $300, the key to successfully saving is to be consistent.
- Live within your means. We all want the best things in life, but it’s okay if you don’t have that shiny new Tesla, or the latest PS5 console. Social pressures can push people to spend more than they need or to buy things they can’t afford. We all feel this pressure but you don’t need to prove anything to anyone. The best way to get the things you want is to assess your income, debts and other expenses before making big purchases.
- Set up a joint account. If you’re living with someone you share expenses with, setting up a joint account can help with budgeting.
- Keep track of your subscriptions. Almost every streaming platform charges in the form of monthly or yearly subscriptions. From Netflix, Hulu, Disney+ to Spotify, it’s easy to subscribe to them all. However, the cost adds up a lot when you have multiple subscriptions. To stay ahead, cancel and re-subscribe platforms that have content that you only watch seasonally, such as sports. Also, try to avoid duplicate subscriptions such as having Apple Music and Spotify, which in a sense do the same thing.
Should you save or Invest?
The answer is to do both. Investing money is the best way to build wealth in the long run. The average annual rate of return for investments is 10% which is way more than the interest rate of any savings account. Saving on the other hand is also important, especially for emergency funds and immediate cash. To learn more about investing, check out our article here.