There is a rule out there called the 50/30/20 rule. This rule says that twenty percent of our money coming in should be saved. There are also a lot of people out there that say we should save somewhere between three to six months of our expenses. This number goes up to a year depending on if your income fluctuates a lot. This information is great and all. But where do you start?
You should first start by opening a high-yield savings account. Too many people who even have savings accounts have terrible accounts that they opened when they were young. Often these accounts pay little to no interest in their savings.
This is why it is important to look for high-yielding savings accounts. Go to Google and type it up. You will find several out there. Pick the one that makes the most sense for you. Also, if possible don’t have your savings account at the same institution as your checking account.
It is too tempting to transfer money between these accounts. This money should be used only for emergencies. You could later build money to save for vacations or gifts. However, the priority should be to save for emergencies.
You now have your account setup. What should you do next? The next step should be to talk to your payroll or human resources department and have some of your check automatically go to your new savings account.
This is called paying yourself first, and it really works. It should work very similar to how your money is pulled to fund your 401(k). This is why it was recommended not to have your checking and savings account together.
The last two items you should do are to send any extra money to this account. You worked a little overtime, send it to this account. You got some birthday money, send it to this account. You got cashback using your credit card, send it to this account. You get the point.
You want to hit your target of savings before moving to another step in your financial journey. The last thing is make sure you use this money only for emergencies. This money should not be spent to go out or buy gifts.
We all know each other and if this is too hard to do on your own then try this tip. Ask your sibling or friend if you could pay them some money any time you pull money from this account for anything other than an emergency. Ask them to ask you monthly if you pulled money. You will then pay them an agreed upon amount as punishment for pulling money when it was not an emergency. This will encourage you to stay on track.