According to a recent study, over two-thirds of Americans (69 percent) have less than $1,000 saved in a bank account. This statistic is troubling for many reasons, particularly when it comes to having an emergency fund or saving for retirement.
If you’re one of these individuals, you may be struggling with the idea of saving money. However, what if you could stash up to $5,000 within a year? It might seem far-fetched right now, but it is possible. We’re going to show you how.
On the surface, $5,000 is not very much. However, for those who are living paycheck to paycheck, it can be a game-changer. Having this kind of cash in the bank can come in handy for many reasons, including:
Although saving $5,000 in a year sounds nice, how can you achieve that goal? We will break down two primary methods of doing this, and we’ll divulge some secrets to help you get there. Here’s what you need to know.
If you divide 5,000 by 52, you get roughly $96. If you were to try and save an equal amount each week, you should aim for $100. Unfortunately, life usually gets in the way, so that process is easier said than done.
Alternatively, you can have an adjustable savings plan that goes up and down throughout the year. Some weeks you may put away $100, while others, you might only save $20. As long as you calculate everything beforehand, you can adjust your strategy accordingly.
Most importantly, you want to have the savings process automated so you don’t have to think about it. If you can set up an automated transfer every week (or month) from your checking account - right after you’re paid - to your savings account, it will make the process much easier.
For some people, saving money every week sounds impossible. Alternatively, you can focus on putting away enough cash every month. To reach $5,000 by the end of the year, you would have to save $417 monthly.
If you’re not used to saving at all, then this tactic may be easier to adapt to at first. From there, you can try saving each week to see how it feels. However, there are no “right” answers here - whatever works best for your situation is fine.
Once you break down the total into bite-sized chunks, the next step is to figure out how you will reach each stage. Fortunately, the more you get into the habit of saving, the easier it will become. However, the opposite is also true; if you slip and stop putting money away for a while, it can be challenging to get back on track.
Although everyone’s situation is unique, here are some ways to achieve your yearly total.
On the surface, this tip sounds obvious. If you want to save money, you should start making more. However, what we mean is that you should bundle savings and earnings to reach your monthly or weekly total.
For example, rather than trying to cut your expenses by $417 each month, what if you could make an additional $100? In that case, you only have to save $317. If you create a weekly plan, you can use the same tactic. If you need to put away $50 this week, is it easier to cut some of your expenses or earn some cash on the side? This way, you can adjust your methods each week to accommodate your lifestyle.
Here is a quick breakdown of strategies you can use to increase your earnings and lower your expenses.
As the saying goes, “out of sight, out of mind.” If your savings is sitting in your primary bank account, it’s far too easy to lose track of it. Instead, put it away in a separate account so that you aren’t tempted to spend it.
Ideally, you would be able to save money in an account that will earn interest. Fortunately, many mobile apps can make it easy for you. For example, Acorns can deduct funds from your checking account automatically and invest them for you. Because the money is earning interest, you can potentially reach your goal faster. This is called micro-investing.
That being said, you will have to weigh the pros and cons of tying up cash in an investment account. If you need money fast, these apps will usually take up to five business days to process a withdrawal. If necessary, only put a portion away there and the rest into a standard high-yield online savings account.
Instead of shifting money from one digital spot to another, you can save physical cash instead. This way, you can put it in a hiding spot so that you are less tempted to spend it. Even better, you can give the money to someone you trust so that they can hold onto it for you until the end of the year.
If you are saving money weekly, you can try using envelopes to your advantage. At the beginning of the month, write specific totals on a bunch of envelopes. It helps if you calculate these numbers first to be sure you’ll reach your goal.
Then, each week, you pull two envelopes at random, and you have to put the cash in each one within seven days. For example, one may say $5 while the other says $55.
One primary reason why so many people have trouble saving is that they wait until the end of the month to do it. However, the problem with this method is that it’s too easy to spend the cash in your account.
Instead, start the month (or each pay period) the opposite way. If you know that you have to save $417 each month, put away $208.50 with every paycheck as soon as you receive it. This way, you know the money is saved, and you can spend the rest with impunity.
Another option is to automate your savings and treat them as another bill. If you started a new subscription service or added a phone line to your plan, you would find a way to pay for it, right?
So, pretend like you are the bill collector and make sure that your account is always paid on time. When the saving is automatic, it’s easier to stay on track, and you will never forget about it.
An extra benefit of this tactic is that you can always dip into the saved money if you need it. This option is far better than borrowing cash or using a credit card.
Once you get into the mentality of paying yourself first, you might start to notice that the idea pops up from time to time. Instead of going out for lunch, you may put that cash into your savings account and bring a meal from home.
Overall, you should start questioning each expense before making it. Do you really need that morning coffee? What about that new pair of shoes? Are there cheaper alternatives? Even if the savings are $5 or $10 at a time, they will add up quickly. No amount is too small to save.
Although it would be nice if you could reach your savings goals every week or month, life can often get in the way. If you find yourself backsliding, it’s easy to get discouraged and start thinking that the goal is impossible.
However, setbacks are an unavoidable part of life. The only thing that matters is how you react to them. If you have to dip into your savings once or twice during the year, that’s okay. One way to make it easier on yourself is to consider how you would have paid for these items without your savings.
For example, if you had to borrow from a friend or increase your credit card balance, you would be far worse off. By saving money regularly, you are providing yourself with a financial cushion, which is there when you need it. So, don’t get upset if you have to use it before you’d like.
If you need help with your finances, it can often be a good idea to meet with a budget expert. At NextGen Wealth, we can assist you with all of your financial goals, from saving for a rainy day to preparing for retirement. We can provide you with a wide array of options to fit your needs and your budget. Call us today to find out more.
NextGen Wealth, LLC is a registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities product, service, or investment strategy. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor, tax professional, or attorney before implementing any strategy or recommendation discussed herein. NextGen Wealth LLC is registered as an investment adviser in the states of Missouri and Kansas, and is notice-filed in the State of Texas. As such, it may only transact business with residents of those states and residents of any other state where otherwise legally permitted subject to exemption or exclusion from registration requirements.
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