The last few years have shaken up a lot of Americans’ ideas about savings. While the average personal savings amount actually grew during the pandemic (with help from stimulus payments and the dramatic decrease in spending activity), many people are finding that savings cushion dwindling now, as the extra payments have stopped and the spending on dining, travel, and entertaining has picked back up. A 2022 study found that even though a majority of respondents reported increases in their personal savings over the last two years, savings levels have dropped 15% from last year.
A personal savings is important for any individual or family. Life is full of unpredictable events, even for the most conscientious planners. Depending on your situation, a personal savings can be either a helpful cushion or a much-needed lifeline. Some occasions a personal savings can come to the rescue:
· Possible job loss
· Health emergency
· Major home repair
· Future needs: retirement, college tuition
· Potential travel opportunity
· Business opportunities: starting your own business, investing in a new venture
If you are like many Americans, you have not yet reached your savings goals. If you are looking to bolster your financial cushion, some ways to boost your savings before a crisis descends or a great opportunity passes by:
A budget lays out for you in black and white how much money you have coming in and how much is going out. Make a spreadsheet or use a budget app that allows you to categorize each type of monthly expenditure. Take the first month or two to record your essential bill payment amounts as well as your nonessential spending. Contrast those amounts with the amounts in your paychecks (and other sources of income) and make adjustments to the less essential categories so that there is some money left every month for savings. Add a savings category to your budget, and remember to prioritize that item as much as housing, utilities, and food so that you can add consistently to it each month.
Once you make a budget, you will be able to see exactly where your money is going—and exactly where it is being wasted. Examine your nonessential monthly spending to see if there are little extras that you can live without. Even small expenditures can add up over the course of a year, so if there is some category that is less important to you than a savings, trim it or give it up entirely for a year and allocate that money to savings.
A designated savings account at a bank allows you to track your progress more efficiently because you know that the entire balance is devoted to savings. Having a separate account for savings helps keep you disciplined by reminding you each month to allocate funds toward it. Look into setting up automatic transfers from your checking account so that saving money does not require energy or thought on your part.
Savings accounts tend to accrue very little in interest. Your interest payment on your debts is likely much higher than what you can get in a savings account, so you want to keep up with those loan payments. But you can still manage to save while paying off big debts if you design a budget around those priorities. It may be wise to make your larger debt payments to the loans with the highest interest, so that each month a larger share of your overall debt payment is directed at principle. If you have small but annoying loans that seem to linger, you might choose to pay those off at once and then consolidate larger debts at a lower interest rate. Analyze the debts you have and determine the best way to pay them down while still allocating a set amount to a savings account.
If you receive a large sum of money unexpectedly or as a gift for a special occasion, put in savings as much of it as possible. This allows you to add dramatic increases to your savings without budgeting and will help you reach your savings goal faster.
Getting organized is the first step toward creating a savings; staying organized is the only way to realize your savings goals. Many people lose track of their spending and have no idea where all their money is going. A plethora of online tools, budgeting apps, debt planning apps, and accounting services for individuals as well as small businesses are available and affordable. Some are even free. Depending on the complexity of your financial situation and the types of features you want access to, it may be worth a small investment in digital tools if it helps save more than it costs. Apps that help you create a budget, categorize your debts, and integrate with other financial tools create a high level of organization and give you a big-picture view of your overall financial health.