What would happen if your vehicle’s brakes needed to be replaced or your home’s plumbing needed significant repair? Would you have the funds tucked into your savings account to pay for this type of unexpected bill? Many American households have little to no emergency savings for unexpected expenses. That’s frightening especially when individuals use high-rate credit cards and payday loans as a solution.
But, You’ve Tried Saving Before
If you’ve done the hard work of creating a budget and you’ve worked at minimizing your spending but are still seeing a lack of savings put aside, you may wonder why. Take a look at your statement from the previous month. Where did your money go? What did you spend your “savings” on? It can be frustrating to see a lack of funds even when you think your income is high enough to make it possible. Here’s what you can do to turn that around.
Step 1: Separate Your Savings
We often see this as the single most important step for our members to take when creating a savings. If the money you plan to set aside for savings is in your checking account, it’s very accessible and easy to spend. Many members will use the funds in their checking account to get ahead on bills or to meet unexpected financial requirements.
When you separate your checking and savings, even creating a completely separate account at the credit union specifically for savings, that break can help your savings balance grow. Suddenly, you have an extra step to take to withdraw and use that money. Separating your accounts helps to grow your savings faster.
#2: Take Action But Make It Automatic
Now that you have two accounts, you need to set up an automatic way to get money into your savings account. Depending on the type of account you set up, you can schedule an automatic transfer to occur. This will allow for an automatic transfer from your checking into your savings. When you visit the credit union, you can set this up in a matter of seconds.
Select the amount you wish to put into your savings account weekly, every paycheck, or monthly. The transfer occurs reliably and automatically. You will quickly see the amount in your savings grow. You don’t have to remember to do anything either. Even saving just $50 a month leads to a $600 savings a year (not including earned interest).
#3: Make Careful Spending Decisions
When an emergency occurs, such as the brakes or plumbing fail, you can turn to your checking account to determine if the funds are available. If not, you can use your savings to cover the costs. The secondary benefit here is that you don’t use high-interest credit cards from banks and stores or other costly loans to meet these financial obligations. Instead of spending $500 on a bank or store credit card and paying 20% interest on those borrowed funds, you pay just the $500 out of your account. That’s a significant savings.
Let’s Get Started
In the long term, a separate savings account with automatic transfers will help you save more and translate into greater financial freedom in the future. It’s a simple method to growing your savings without thinking twice about doing so. After a while, you may not even realize that $50 a month isn’t in your checking account to spend either.
If you’re ready to open a savings account or set up automatic transfers to your savings, stop by or give us a call at 800.782.4899.
Each individual’s financial situation is unique and readers are encouraged to contact the Credit Union when seeking financial advice on the products and services discussed. This article is for educational purposes only; the authors assume no legal responsibility for the completeness or accuracy of the contents.