Developing a sensible savings habit is a good thing to do. The trouble is sticking with it and being firm about what constitutes emergency situations. For instance, Apple releasing a new iPhone with the most amazing of apps is most definitely NOT an emergency. But, a medical issue absolutely IS.
Let’s take a look at some of the smartest strategies that will ensure you save. And, keep your hands off the money.
1. Segregate Your Savings and Name Them
Saving for a specific purpose or a dream is always the smartest incentive. Today, the internet makes it even easier. Sign up for an online bank account that has different sub-accounts. Label them according to the objectives you’re saving up for. Like, say, college fund for a child, down payment for a house, dream wildlife-viewing vacation in Africa, property taxes, retirement in Cape Coral, or any other. Naming the account can act as a powerful deterrent from dipping into it for frivolous purchases.
2. Divert Funds Automatically to a Different Account
Give your bank standing instructions to divert a percentage of your salary each month from your checking account into a savings account. Alternatively, divert it to an IRA or brokerage account. If you don’t see the balance in your checking account, you won’t be tempted to spend it.
3. Open an Account in a Different Bank
Open a savings account in a different bank or financial institution from where you have a checking account. Make it a point to deposit a percentage of your annual earnings into this account and forget about it. But, make sure you receive digital statements of the account from time to time so you’re alerted to any frauds or thefts like unauthorized withdrawals and any other activity.
4. Divert All Additional Savings and Windfalls into a Separate Account
Each time you receive some extra cash, make it a point to set it aside as savings. Here are some examples:
- You may receive cash back on a credit card you use for specific purchases. Pay off the bill in full at the end of each month and divert the rewards to a savings account.
- You may opt to cancel a magazine subscription or any other monthly service that you don’t need. Save that money.
- You pay off a debt in full in place of installments. Divert that amount towards savings.
- You receive tax refunds, bonuses, rebates, or gifts. Spend a small amount and save the rest.
- You get a 5% raise on your wages. Divert, say, 3% towards your IRA or 401(k) accounts each month, and spend the balance 2% to reward you for all that hard work.
5. Use a Piggy Bank
This strategy might sound childish, but it will actually bring you the childhood joy of saving. Every day when you get home from work, pour out all the spare change, and $1, $5, and $10 bills into a jar or money box. You’ll be surprised at the amount you collect at the end of the month.
6. Buy Certificates
Buy certificates of deposit that lock down the cash for a specific time period. Typically, these certificates will incur a tax or penalty if you encash them ahead of due date. This factor should act as a good deterrent from using up the money. Only make sure you have a small amount of cash like, say, $500 handy for unexpected expenses.
7. Sign Up for an Online App
If you’re okay with letting an online app manage your money, consider signing up for apps like the Digit or Acorn. These tools analyze the transactions you make each month and depending on your regular spending habits, they may divert a percentage towards a savings account or invest it for you. You could also check with your bank with automated savings programs. Like, the Keep the Change program offered by the Bank of America that transfers the spare change from your debit card purchases to a savings account so you’re charged a round figure.