A good savings plan is a road map to a better financial life. If you create one and follow it, you’ll know you’re looking out for your future self.
A savings plan doesn’t have to be difficult, but it does require commitment. Take these steps today to build a solid one.
Start where you are
Get an idea of your current financial picture. That will help you figure out how much you can save. For example, if you generally spend your paycheck before the next payday, it probably doesn’t make sense to plan you’ll start saving $1,000 monthly.
Instead, look for ways to deposit a smaller amount, say $50 a month, in your savings account. When you follow the plan, you give yourself a series of small wins to build on. (And if you’re looking for a new place to put your savings, see NerdWallet’s list of best savings accounts to find options with high rates and low fees).
» Skip ahead to compare three high-rate savings accounts for your deposits.
Examine your spending
Whether you want to save $50 monthly or $1,000, the next step is to see if you can cut back on spending. You can do this easily by looking up a few months of bank statements — your financial institution probably has them online — and combing through your expenses.
You don’t necessarily have to give up your drive-through coffee or even your favorite avocado snack. But if you order takeout lunches five days a week, you might decide to pare it back to three days and bring cheaper meals from home on the other two. It can be a pain-free way to find spare dollars.
If your budget is tight and you can’t see many spots to save, you might be able to find ways to increase your income. This may include getting a side hustle, selling unused items or looking for a higher-paying job. It’s not always easy to find fast cash, but these strategies might help you gain some wiggle room in your budget.
Your bank’s mobile app and website are your friends when it comes to savings, since you can use them to automate transactions. About 54% of bank customers who are online say their institutions’ mobile apps make it easier to deal with banks, according to a Mintel report.
You can set up automatic transfers so that on each payday, for example, a specific amount of money is moved from your checking to savings. Over time, you’ll be able to watch your savings balance grow with little extra effort.
Maximize every dollar
Make sure the money you’re saving is working for you. About 73% of consumers use a savings account, according to a Mintel survey. But the average savings account pays only 0.06% annual percentage yield, according to the Federal Deposit Insurance Corp. Even if you have a robust savings balance — say $10,000 — a small APY doesn’t boost it by much. For example, at 0.09% APY, that amount would earn less than 10 bucks after 12 months.
High-yield savings accounts, often offered by online banks, pay more. Because these banks don’t have to pay for physical branches, they tend to pass on the savings to customers by offering higher rates. And if you put that same $10,000 into a high-yield savings account that earns 1.80%, you’d have more than $180 extra after a year.
The extra money will continue to earn interest as time goes on, along with your initial deposit. This compounding interest will boost your balance faster than if the cash were in a lower-rate savings account. (See NerdWallet’s compound interest calculator to add up how much you can save).
Compare savings rates
» Looking for more top savings rates? Read NerdWallet’s list of best high-yield online savings accounts.
Keep your goal in mind
After you’ve put away a chunk of change, you may be tempted to dip into it from time to time for an unplanned splurge. But if the splurge keeps you from your goal, it’s better to resist that temptation.
One way to avoid a lapse is to keep the goal top of mind. Are you saving for a vacation? Put a picture of the locale near your computer or in your wallet to help you stay on track. Building an emergency fund? Put weekly messages in your calendar to remind you that the fund is there for unexpected major expenses.
You could also share your goals with close friends and family, so they can celebrate with you. You don’t have to share specifics. Saying something as simple as, “I made a plan to put away money this month, and I did it!” can help you stay accountable and give a boost.
Once your savings plan is in place, look for ways to save more. If you receive a pay raise at work, consider sending the extra funds straight to savings. And if you’ve managed to reach your emergency fund goal of stashing away enough money to cover three to six months of expenses, you can move on to other goals. For example, read NerdWallet’s guide on how to get started in investing to start funding retirement.
A savings plan is a good step toward financial well-being. Put that plan into action and you will be well on your way to building a larger bank balance.
2. Mintel. “The Banking Experience–US, Feb. 2019.” p. 28, https://reports.mintel.com/display/918510/ Accessed Feb. 21, 2020.
3. Federal Deposit Insurance Corporation. “Weekly National Rates and Rate Caps – Weekly Update.” https://www.fdic.gov/regulations/resources/rates/ Accessed Feb. 21, 2020.