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Maskot/Getty Images June 30, 2022 Matthew Goldberg is a consumer banking reporter at Bankrate. Matthew has been in financial services for more than a decade, in banking and insurance. Libby Wells covers banking and deposit products. She has more than 30 years’ experience as a writer and editor for newspapers, magazines and online publications. David Schepp is a wealth editor for Bankrate, focusing on deposits and consumer banking content. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our banking reporters and editors focus on the points consumers care about most — the best banks, latest rates, different types of accounts, money-saving tips and more — so you can feel confident as you’re managing your money. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. Saving isn’t always easy, but it pays off over time. One common strategy for saving money is called the : Spend 50 percent on needs, 30 percent on wants and put 20 percent toward savings and paying off debt. But how do you save more when money is tight? These seven savings strategies can help you save for different goals. 1 Automate your savings
To better organize your savings goals, start by getting a clear picture of your financial situation. Automating your savings is also a smart way to increase your savings. Putting your savings on autopilot is an easy way to separate savings from spending money. It’s tempting to spend money after it hits your checking account. Automating your savings helps you avoid that temptation. Two ways to automate your savings are to split up your and funnel part of it into a and to set up a recurring transfer from your checking account into a savings account. Typically, you can take either a percentage of your paycheck or a fixed amount and use direct deposit into a savings account. You can also set an amount to be moved from your checking account into your savings account and then set the frequency of the transfer. 2 Set up an emergency fund
Common advice for is to save at least three to six months’ worth of living expenses before you start saving for other goals. The emergency fund is separate from your other savings. It is a ready source of cash for unexpected expenses and a hedge against tapping a 401(k) or other long-term savings accounts. A sufficiently padded emergency fund also keeps you from having to use credit cards or borrow money to pay bills if you lose your job, need a costly car repair or encounter some other major, . The amount to set aside “depends on how long you expect to be looking for work,” says Judith Ward, vice president and senior financial planner with T. Rowe Price in Owings Mills, Maryland. “Households with just one worker or folks who earn commission may want a little more just because of that uncertainty.” 3 Tackle high-interest debt first
It’s crucial to tackle high-interest debt as quickly as possible, because the interest added each month to the balance is money you instead could be saving. A popular savings strategy for paying off debt is to zero out the highest-interest debt first. Once you’ve cleared that balance, move on to the debt with the next highest APR. This strategy, called the avalanche method reduces how much interest you pay over the long run. Bankrate’s can help you calculate how soon you can pay off a credit card. 4 Save for short-term goals
Once you have established an emergency fund, separate your next priorities into three savings buckets, which include short-, medium- and long-term goals. Example of short-term goals
Car down payment Let’s say you want to a year from now and you plan to spend $12,000. You’ll need to save $1,000 a month, so you must figure out how you’re going to fund this short-term savings bucket. Vacation A vacation could easily cost a few thousand dollars, depending on where you are going and how many people are coming along. Adding short-term savings goals can help you afford the vacation you want by saving just a little bit at a time. Best savings accounts for short-term goals
Both a high-yield savings account and money market account are smart choices for building your short-term savings. High-yield savings account A returns a better yield than many standard savings accounts and can help boost your savings. The interest earned could be put toward registration fees and taxes on your new car. Or, you could reinvest it and start another short-term bucket. Money market account A is another useful tool for saving for short-term goals. Like savings accounts, money market accounts are liquid, which means you have ready access to your cash. Unlike savings accounts, many money-market accounts include checks and/or a debit card, making withdrawals easier. aren’t as liquid as savings and money market accounts. Money deposited into a CD is held by the bank or credit union for a specific period — typical terms are one month to 10 years — and taking the money out prematurely could result in an . 5 Save for medium-range goals
If your dream is to , or your child’s wedding, you’ll need to go beyond belt-tightening and set up midterm savings buckets. Examples of medium-range savings goals
Weddings Weddings are another large medium-term savings goal. The average cost of a wedding is $28,000, according to . Of course, a more frugal wedding can be a joyful event, too, but it’s still smart to plan for a big expense. Down payment on a house A CD may be of great use here, but you could also tap your for up to without incurring a penalty. College To save for your child’s education, consider using a . These tax-advantaged savings plans work much like a 401(k) or IRA. Your contributions are invested in mutual funds and other investments. With midterm savings buckets, avoid exposure to too much risk. The goal is to preserve or increase capital. Best savings accounts for medium-range goals
Good vehicles for saving cash for medium-range goals include: Whether it is a brick-and-mortar or an online bank, a money market account is a suitable option for saving for the medium. Online banks tend to have a higher yield due to lower overhead, but be sure to check which money market rates are best for your circumstances. You can earn higher APY with a savings account than a traditional checking account, allowing you to squirrel away funds without the temptation to access them in the short-term. typically pay higher rates than traditional savings accounts, which can help you save more. (CD) is a common option for savings strategies, helping you fund that down payment for your new home. If you choose a CD, additional deposits are usually not allowed during the CD term after the initial deposit. Your money will be tied up for a specified period, and if you withdraw the money early, you’ll incur a penalty that will eat into your interest earnings. are an exception. If you’re going to fund this savings bucket with a CD, time the maturity date as close to the wedding date as possible to avoid an early withdrawal penalty. 6 Save for long-term goals
Saving for the longer-term often requires looking beyond standard banking products, such as savings deposit accounts and CDs, to earn higher rates of return on your savings. Examples of long-term savings goals
Retirement Retirement is perhaps the one savings goal where the time horizon is long enough that you can usually ride out market volatility that’s common when investing in stocks and bonds. Recommended account for long-term goals
401(k) An easy way to fund a retirement account is to participate in your employer’s retirement plan, which is typically a , or , depending on whether you work for a private employer, a nonprofit or the government, respectively. Generally, your taxable income will be reduced by the amount you save. IRA If your employer doesn’t offer a plan, look into opening a traditional or . Most experts say the only way investors can achieve a comfortable retirement is to invest a percentage of their long-term savings in equities. Given current low savings rates, the stock market remains for many households the only option to earn returns that can outpace inflation. And though stock prices may fall — and sometimes drastically — the average return of the S&P 500, a broad measure of stock performance, is more than 9 percent over the last 20 years. 7 Use multiple savings accounts
Having more than one savings account is another way to earmark your money for different financial goals. Having multiple savings accounts can help ensure that money meant for one savings goal isn’t being used for another. If all of your savings is in one account, for example, money meant for your emergency fund might accidentally be used for a vacation. Having also gives you a clearer picture of how you’re progressing toward your different savings goals. If you have $20,000 saved and it’s all in one account, it may be harder to keep track that you have $5,000 saved for an emergency fund and $15,000 for a home purchase. And because many banks offer savings accounts that feature the same interest rate, no matter how low your balance, you don’t need to put all your savings in the same account to get the highest yield. Bottom line
It’s possible to save money for emergencies, as well as retirement, education and other goals. But it takes planning — — and discipline. Building up savings offers peace of mind and can shield you and your family against a financial crisis. SHARE: Matthew Goldberg is a consumer banking reporter at Bankrate. Matthew has been in financial services for more than a decade, in banking and insurance. Libby Wells covers banking and deposit products. She has more than 30 years’ experience as a writer and editor for newspapers, magazines and online publications. David Schepp is a wealth editor for Bankrate, focusing on deposits and consumer banking content. Related Articles