Saving money for a rainy day may seem impossible, especially if you’re living paycheck to paycheck. But when you have a plan in hand, things can change. By re-prioritizing your budget and paying your future-self first, you can develop a strong saving habit that can help during financial emergencies.
What Does Pay Yourself First Mean?
Paying yourself first means prioritizing your budget so that saving is at the top of the list each payday. No matter if you get paid bi-weekly or monthly, the first transaction should be to set aside money in a separate savings account for yourself.
Plan to Save
Forming a savings habit isn’t difficult. It starts with an honest look at your finances. First, review your spending to see where all of your money goes each month. Next, create a budget that makes saving the priority, not an afterthought. One example is to use the 50/30/20 Rule, which is a budgeting technique that allocates your paycheck by percentage.
The “50” stands for 50 percent of your income set aside for needs, such as essential living expenses and food. The “30” is for 30 percent of your paycheck goes to things you want that are not necessary. The final “20” or 20 percent of your income goes to either savings or debt repayment. This budgeting technique is an excellent way to allocate your paychecks.
Create a Budget
Understanding your monthly income and expenses will make you aware of what’s essential and what’s not. Begin by reviewing your financial statements to see where you spend your money. Typically, bank statements are available monthly for checking accounts and often quarterly for savings accounts.
Another good tool for reviewing your spending is digital access to your account, known as online or mobile banking. With both, you can get an immediate view of your accounts and account balances, the most recent transaction history and more. Some financial institutions may pre-assign your spending into categories, making it easier to sort expenditures.
Start Saving
Once you know where your money goes each month, get your budget in position to save more. Look for ways to cut back spending on items such as food, housing and transportation.
- Food Costs: Buying whole foods from the grocery store instead of packaged single-use foods can help save money since you will be purchasing in bulk rather than each time you need the item. Another good way to save is to cook at home more and eat out less.
- Housing Costs: Housing costs can be reduced by moving to a more affordable area, downsizing, or getting a roommate. As generally the largest monthly expense, a change here could go a long way towards you having more money to save.
- Transportation Costs: You can save on gas by walking, riding a bike or taking public transportation instead of driving. If you need your car, there are mobile apps available that can locate the most affordable gas prices in your area. Another tip is to shop around for the best car insurance rates, which can also save you money.
- Utility Costs: Cutting costs on your home utility bills can also help increase your savings. Reduce the amount of energy, water, heating and cooling you use. Some examples include turning off your lights, printers and computers when they’re not in use. Also, use fans or space heaters if you’re spending your day in your home office instead of heating or cooling the entire house.
Start Small to Save Big
When it comes to building a financial nest egg, there’s no magic minimum amount you need to save to get started. Your budget will determine how much you can comfortably save each paycheck. Even small, regular deposits over time will turn into a big savings balance.
Here are some ways you can maximize your savings:
- Automate: By automating your savings you allow your funds to be transferred automatically to your savings account each payday. This is a stress-free way to save.
There are several ways to automate deposits. You can have your employer deposit a portion or percentage of your paycheck to your savings account. For example, Travis Credit Union has a Target Savings Account specifically designed for short-term savings. Another way is to have your financial institution initiate the transfer from one account to another. Or use their online banking to make the transfer yourself.
- High-Yield Savings: Another way to maximize your savings is to put your money in an account that offers higher dividends than a standard savings account. This will allow your money to grow faster.
- Share Certificates: A Share Certificate offered by credit unions is similar to a Certificate of Deposit offered by banks. Certificates are a great way to grow your funds faster than traditional savings accounts. A certificate will lock in your funds for a set term and in return you’ll get a set annual percentage yield, so you’ll know exactly how much you’re earning.
With certificates, your money is locked in until the maturity date, which is the date that your certificate expires. Locking in your money this way maximizes your savings by focusing on growth. If there’s an emergency and you need these funds, you’ll likely have to pay a fee to withdraw funds before the maturity date.
- Money Market Accounts: Money Market Accounts work just like savings accounts but offer an added feature, which is the ability to write checks from the MMA. These accounts allow you to access your funds more readily and typically offer higher dividend rates than savings accounts.
Despite the name, MMAs are not invested in the stock market. Like other deposit accounts, they are federally insured up to $250,000 by the National Credit Union Association for credit union accounts and by Federal Deposit Insurance Corporation for bank accounts.
TCU Can Help
Starting a saving journey doesn’t have to be difficult. Because we are focused on your financial wellness, Travis Credit Union has the tools to help you plan, save, spend and borrow better. We offer financial wellness webinars and other educational tools that help you reach your financial goals. We offer great rates on savings accounts to help get you started. Visit us online or at one of our branches and see what savings options we have for you.
We hope these tips help you save smarter. By paying your future-self first, you’ll be prepared for any unexpected financial emergencies.