But then you’re online window shopping and the “add to cart” button is all too easy to push. Or your friends want to check out a new dining spot—and split the bill evenly. The next thing you know, you’re spending money left and right, and those savings goals feel like a mirage in a desert.
According to a Bankrate Financial Security Index survey, more than one out of five working Americans aren’t saving any money for either long-term or short-term goals. That’s absolutely zilch saved for emergencies or retirement.
Fortunately, there are several savings buckets you could fill up in 2021, which could help you feel more confident moving forward.
1. Building an Emergency Fund
An emergency fund might be one of the most important accounts you have.
Remember in A Christmas Story when Ralphie squeaks out the F-dash-dash-dash word? That, my friend, could be your reaction to a financial emergency. Lack of an emergency fund may be just one reason why 30% of Americans are always worried about their finances.
If you want to protect yourself from unnecessary stress or going into debt for things like a car repair, a broken cell phone, or sudden job loss, an emergency fund is a great place to start. It might be one of the most important accounts you have.
Imagine losing your job or needing serious medical attention. The emergency fund is your backup plan to make sure you can still cover your expenses.
Determining How Much You’ll Need
The right amount for you will vary depending on your situation. But if the thought of saving some giant number seems daunting, know that you can start small. The Federal Reserve reports that many Americans would find it difficult to cover a $400 emergency, so $500 can be a great place to start. If you saved $100 per month over the next five months, you’d have already hit your goal before 2020 rolls around.
Tracking Your Spending Habits
How does tracking your spending help you save? Well, if you don’t know that you are spending an exorbitant amount of money on takeout, for example, you could literally eat up potential savings.
One way to track your spending is to write out your income and expenses each month. This is what most financial folks refer to as a budget. But if that word makes you cringe, just think “spending tracker.”
Through your spending tracker, write down everything you spend money on. You can categorize purchases into bigger buckets, like groceries, shopping, or insurance to find trends and patterns. It might be easier to do this digitally, but if you are more of a hands-on learner, you could try using a whiteboard. Then you can change spending habits if needed and throw that money towards the emergency fund, or other goals.
Setting up a Separate Interest-bearing Savings Account
Emergencies hopefully won’t happen often, so perhaps consider keeping your emergency fund in a high interest checking or savings account. The longer that money sits, the more of a chance it has to grow interest over time.
2. Paying Off Credit Card Debt
In 2018, the average household carried $5,700 in credit card debt, according to Business Insider . Average interest rates recently are ranging from around 15% to nearly 27% . If you want to hit savings goals faster, getting rid of unsecured debt could mean more bucks in your pocket.
Locating All Outstanding Credit Card Debt
A possible first step is to locate all outstanding credit card debt and list it in one place. You could do this on a sheet of paper or a spreadsheet, but the information you’ll likely want to track is credit provider, total outstanding balance, minimum payment, and interest rate for each debt.
By keeping this all in one spot, you can have a better picture of where all your debt is at. You can also organize your debts from highest to the lowest amount owed or by interest rate.
Prioritizing Credit Card Payments
It can be easy to let credit card payments slide, especially if you are trying to build up multiple savings goals. Trying to save for multiple goals while you have credit card debt can be frustrating.
However, credit card interest can kill your savings progress. Imagine forking over more money to credit card companies month after month and making minimal progress towards a savings goal. If you prioritize paying off your credit card, you could have a better chance at saving for other goals more effectively.
If you really want to work on your credit card debt, you could start by selecting a debt payoff strategy. You can choose to tackle your debt by focusing on first paying off the card that has the highest interest rate—also known as a debt avalanche—while still making payments on all your other debts. This can save you beaucoup bucks in the long run but can feel like slow progress, especially if you have a high balance.
Alternatively, you could pay off credit card debt by first tackling the card that has the smallest outstanding balance (again, while still making payments on all your other debts). This is called the debt snowball, which ignores interest rates. The method is intended to give you a quick win by paying off the smallest balance first.
Or you can implement SoFi’s Debt Fireball Plan, which is like a hybrid of the snowball and avalanche. In this method, you would organize “bad” debts (meaning debts with an interest rate of 7% or higher) from smallest to largest based on their outstanding balances. While making minimum payments to all the debts, you would then focus any excess funds to the smallest balance of your “bad” debts. Once the smallest is paid off, you would move to the next smallest, and so forth.
Everyone’s financial situation is different, so do whatever method is best for you.
Lowering Your Student Loan Payments
There are a few tips out there to help lower your student loan payments. One possible way is to lengthen the term, but know that this would lead to more interest payments over the life of the loan. For federal loans, there are also income-driven repayment plans available to qualified applicants.
Another possible way to lower your student loan debt is through student loan refinancing. Student loan refinancing means a private lender pays off your loan(s), and then you are given a brand new loan through that private lender, ideally at a lower interest rate. One thing to note, you will lose out on federal benefits when refinancing federal loans with a private lender. But if you qualify, it could potentially save you money on interest by making the switch.
3. Taking a Vacation
If Cabo is calling, you know the importance of doing a vacation right. It can be hard to save for especially since so many of us are burdened with student loan debt. But it’s also important to experience the world and treat yourself. You can bankroll your next sand-and-sun getaway or wherever you want to go, but first may want to consider these steps.
Prioritizing Your Vacation Wishlist
First, you could list out all of the trips you want to take before or in 2020. Dream big! It may be helpful to get it all out on paper so you can see what’s realistic and what might have to wait until later.
Once you have all of the trips you want to take (or have to take if you have weddings and holiday travel), you could circle the top one to three destinations. These will be the ones you focus on first. If you can save additional cash and have enough to do more trips, huzzah! But otherwise, focus on those priority trips first.
Estimating the Cost of the Trip
Next, estimate the cost of each trip. There are key components to most vacations: transportation, accommodation, food and drink, and entertainment. If you still have debt but want to incorporate travel, you can do so more cheaply by staying with friends and family.
You can also travel on off-peak days. If you are flying, the cheapest days to fly are typically Tuesday and Wednesday. You could also redeem credit card points for cheap transportation. Using your points could be your ticket to Margaritaville.
Using That Extra Income
If you receive any bonuses, tax refunds, or extra money from a side hustle, you could throw that money towards your vacation fund. When you do so, you have more of an opportunity to take advantage of surprise sales from airlines. Airfare can be a big expense if you are flying, so it’s beneficial to have cash on hand so you can snag a deal.
4. Saving Money for the Holidays
Thanksgiving is always on the last Thursday of November and Christmas is on Dec. 25. Shocker, we know. For some reason, people can forget this fact and end up going into debt for the holidays. One survey found that Americans accumulated an average of $1,230 of debt during the 2018 holiday season.
Stocking up for the holidays now could make your life easier down the road.
Stocking up for the holidays now could make your life easier down the road. You can start by estimating your holiday expenses. Consider the cost of travel (either by plane or car), food, decor, and of course, gifts.
Set a goal amount and stay within limits. If you think you will cheat, you could tell someone your goal amount so they can hold you accountable.
Another idea is to set aside money each week until the holidays arrive. Let’s say you vow to spend no more than $1,000 on holiday purchases this year. You could break down that goal into a smaller amount to put away every week leading up to the big day.
By doing so, you might ease the burden of trying to come up with a significant amount of cash during the holidays. Plus, a smaller weekly amount is likely more manageable within your budget.
How to make it a little easier on yourself
Apps for Savings Goals
Do you even use a checkbook? Does keeping track of expenses in complicated spreadsheets sound like fun? For most busy people these days, tracking money has gotten a lot easier thanks to money-tracking apps. Here’s a few functionalities you might want to look for when selecting an app to help you save money:
Connects All of Your Financial Accounts
In order to get a holistic look at your finances and set big money goals, you’ll want to see the whole enchilada.
Sets up Multiple Money Saving Goals
Want to pay down credit card debt, visit a brewhaus in Germany, and save up for that new car you’ve been eye-balling? Life can include multiple goals and so should your app!
Learn more:
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
External Websites: The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
SoFi Loan Products
SoFi loans are originated by SoFi Lending Corp (dba SoFi), a lender licensed by the Department of Financial Protection and Innovation under the California Financing Law, license # 6054612; NMLS # 1121636 . For additional product-specific legal and licensing information, see SoFi.com/legal.
SoFi Student Loan Refinance
IF YOU ARE LOOKING TO REFINANCE FEDERAL STUDENT LOANS PLEASE BE AWARE OF RECENT LEGISLATIVE CHANGES THAT HAVE SUSPENDED ALL FEDERAL STUDENT LOAN PAYMENTS AND WAIVED INTEREST CHARGES ON FEDERALLY HELD LOANS UNTIL THE END OF DECEMBER DUE TO COVID-19. PLEASE CAREFULLY CONSIDER THESE CHANGES BEFORE REFINANCING FEDERALLY HELD LOANS WITH SOFI, SINCE IN DOING SO YOU WILL NO LONGER QUALIFY FOR THE FEDERAL LOAN PAYMENT SUSPENSION, INTEREST WAIVER, OR ANY OTHER CURRENT OR FUTURE BENEFITS APPLICABLE TO FEDERAL LOANS. CLICK HERE
FOR MORE INFORMATION. Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income-Driven Repayment plans, including Income-Contingent Repayment or PAYE. SoFi always recommends that you consult a qualified financial advisor to discuss what is best for your unique situation.
SoFi Money
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC . Neither SoFi nor its affiliates is a bank.
Image Credit: adamkaz
