You must maximize savings to ensure financial well-being and achieve your long-term financial goals.
However, maximizing savings requires strategic planning and a proactive approach. The following points are practical tips and tricks (some of which you might not have thought of previously) to help you grow your money effectively.
From budgeting and reducing debt to optimizing savings through various strategies and new products, we will explore actionable steps to help you make the most of your available resources. Managing your finances can sometimes be overwhelming, but starting is the first step in taking control of your finances and setting yourself on your unique path to financial success.
Maximize savings tip 1: Create a comprehensive budget
Budgeting forms the foundation of effective savings management. Start by tracking your income and expenses to gain a clear understanding of your financial situation. Categorize your expenses and identify the areas where you can adjust or cut back on. Budgeting is easy when you know the right strategy for yourself, like the 50/30/20 rule or the cash-only tactic.
The 50/30/20 rule is simple to follow: 50% of your income goes to necessities like rent and utilities, 30% goes to wants like eating out and entertainment, and 20% goes to financial goals, including savings or paying off debt. In comparison, the cash-only tactic is forcing yourself to pay only in cash, so you have a tangible reminder of the money leaving your hands instead of a careless swipe of a debit or credit card.
Regardless of the strategy you pick, allocating a portion of your income specifically for savings ensures that you prioritize saving and build a healthy financial cushion. First, allocate to your emergency savings fund, which should be held in a high-yield, no-fee savings account with the maximum liquidity possible since you’ll need access to the funds at a moment’s notice.
Maximize savings tip 2: Track and minimize expenses
This one is an obvious one, but the less you spend, the more you can save for your financial goals. Carefully tracking your expenses is vital to identify areas of potential savings. Thankfully there are several apps in the market to help you track your expenses. Among them is Intuit’s Mint, where you can manage a budget, monitor your cash flow, tracks transactions, and even calculate your net worth.
When using apps like this and monitoring your expenses the old-fashioned way, you need to look for opportunities to reduce unnecessary spending and find cost-saving alternatives. Small changes, such as packing lunch instead of eating out or cutting back on subscription services, can add up significantly over time. Remember, every dollar saved is a dollar that can be put toward building your savings.
Assuming you’ve built up your emergency fund to cover at least 3 to 6 months of your expenses, then you can focus on other savings goals, like long-term savings accounts. When selecting an account for your long-term savings, look for one that offers a higher yield and has no monthly fees. Accounts like CDs or money market accounts typically offer higher interest rates than traditional savings accounts and come with terms, so your funds have limited liquidity.
An option for long-term savings goals is Save Market Savings. Market Savings is a unique savings program that gives you the potential to earn a high-yield return on your savings by investing in a diversified portfolio of commodities, stocks, and bonds, all while your initial deposit is safe and FDIC-insured.† With a Market Savings 1-year term, you can earn a variable APY* of 8.96% on your savings and a 9.06% variable APY* on a 5-year term.
Maximize savings tip 3: Minimize and manage debt
This can be grouped with the previous piece of advice because debt is ultimately an expense, but it’s the worse type since it typically comes along with interest. When you’re in debt and have actively accruing interest, you’re only adding expenses. First, what you must do is prioritize paying off high-interest debts, such as credit card balances, as they typically have the highest amount of interest associated with them.
Then tackle your car repayment. While this interest rate is typically lower than credit card debt, it still is there and needs to be addressed. Once your car is paid off, don’t fall into lifestyle inflation and think you can get a newer, better car. Instead, take your car’s monthly payment you’ve been used to budgeting for and put that into your savings. This can be an instant boost to your savings goals, especially considering the average monthly car payment is $516 for used vehicles and $725 for new vehicles, according to credit reporting agency Experian.
Let’s do a hypothetical for fun. Let’s say you’ve paid off your car payment of $500/month. Instead of pocketing that sum, let’s say you take that $500 payment and every two months you make a Market Savings 1-year deposit of $1,000 for an entire year ($1,000 x 6 months = $6,000 in total saved in Market Savings). By the time all of your deposits’ terms end, your potential return could be nearly $540 assuming the Market Savings’ APY* is 8.96%.
Maximize savings tip 4: Seek additional sources of income
According to Self, 45% of working Americans currently have a side hustle, and 28.8% of those use their side hustle funds to contribute to their savings and investments. Additional sources of income can significantly boost your savings potential.
Consider part-time work, freelancing, leveraging your skills and hobbies, or any suggestions provided by Forbes to generate extra income. With the gig economy on the rise, there are numerous opportunities to earn money on the side. Much like reallocating your debt payments, by directing your additional income towards savings, you can accelerate your financial goals significantly.
Maximize savings tip 5: Harness the power of compound interest
Compound interest is our obsession. It’s literally making money while you sleep, eat, work, and play.
By leaving your savings and investment earnings untouched, they can generate additional returns. Over the long term, compounding can significantly increase your wealth. Ultimately, compound interest is the concept where interest is not only earned on the initial investment but also on the accumulated interest over time, resulting in exponential growth.
Starting all of these savings strategies early and maintaining them consistently allows you to take full advantage of compound interest and allow your money to work for you.
Maximizing your savings requires discipline, strategic planning, and a proactive approach. By creating a comprehensive budget, tracking expenses, reducing debt, seeking additional income sources, and harnessing the power of compound interest, you can grow your money effectively.
Remember that every small step counts and even modest adjustments can have a significant impact on your financial well-being. Implement these tips and tricks consistently, and you’ll be on your way to building a solid financial foundation and achieving your long-term goals.