Americans are doing a bad job of saving, and that's even among those working full-time. A recent survey shed light on the problem, finding that more one in five working Americans have nothing saved from their annual income. Of the people who save, few are coming close to putting away the 20% experts suggest.
There are a lot of reasons Americans aren't saving. Wages may be increasing, but so is the cost of living. Prices for rent, gasoline, clothing, healthcare, and eating out all jumped in 2019, reducing the disposable income available to workers. Outside of not being able to afford to save, some people simply haven't gotten around to it yet. That's common among millennials who are worried about paying off student loans rather than saving for retirement.
Whether you think you can't afford to save or you are pushing it off for a later date, the good news is there are easy ways to do it and actually build up a decent nest egg.
1. Round up spare change
Thanks to debit cards and digital wallets, the days of throwing your spare change in a jar to save for a rainy day are over -- or are they?
A bevy of apps has exploded on the scene, enabling consumers to round up their spare change from purchases and have that automatically saved for them. Let's say you're making a purchase that costs $17.50. The app will round it up to $18. Once the customer has a predetermined amount of money in round-ups, the cash is deposited into the customer's account. The round-up doesn't have to be by nickel increments either. You can set it to round up to the next $1.00 or $5.00. You may not get rich saving this way, but it can build up over time and you probably won't even notice it's gone.
There are different variations of these round-up apps, with some depositing the cash into a savings account while others place it in your investment account. Even the traditional banks have jumped on the bandwagon, with JPMorgan Chase and Bank of America among the banks offering a round-up service. Acorns, the investment app, and Qapital, the digital bank, are two popular apps for rounding up money.
2. Make it automatic
One of the easiest and surest ways to save money is to make it automatic. By having money withdrawn into a savings account without any human action required, it increases the likelihood the money will make it there. Studies have shown that when it's done automatically, the savings rate increases.
When it comes to making savings automatic, there are several ways to do it. Employees can have their employer deposit a portion of their paycheck into a separate savings account each pay period. Banks offer the ability to have a set amount of money moved into a savings account each month and mobile apps exist to save money for you. Some are free while others charge a subscription fee, but all aim to help you save with little action on your part.
Saving automatically isn't a set-it-and-forget-it type of action. Make sure to regularly review your budget. If you find ways to free up more money, increase the amount that's withdrawn each month or pay period.
3. Save whatever you can
A big reason people balk at saving is that they don't think they have enough money to make an impact. But even putting $50 away each month can build a decent nest egg. Consider this: $50 a month means $600 a year. Extrapolate that over five years and you've just saved $3,000. That money in the bank can prevent you from having to take out a high-interest loan to cover unexpected expenses or borrow from friends and family.
Any windfall that comes in during the year, be it a tax refund, bonus, or gift, should go into savings. Sure, you may want to splurge on a high-priced item, but fight back the urges and save it instead. The more lump-sum contributions you make to your savings account, the quicker you'll amass an emergency fund.
4. Get out of debt to save
Savings is simply impossible for scores of Americans who are staring at high-interest rate credit card bills each month. They aren't concerned with putting money in a savings account when the bills are piling up. While a blended approach in which you pay down debt and save at the same time works, sometimes you have to get out of the debt to save.
By reducing those high-interest balances, you'll lower the amount you pay in interest. That can result in more cash each paycheck that can, in turn, be saved. If you have low-interest rate debt, a home equity line of credit for one example, save first and then focus on that once you've created an emergency fund.
Saving money conjures up feelings of fear and dread, but it doesn't have to. By automating the process and saving as much as you can, you can quickly shore up cash and eliminate the need to rely on high-interest debt if an emergency does arise.