What if I Can Only Afford to Save $200 per Month?

Saving is a financial goal for many Americans. But when you only have so much extra cash left over after paying all your living expenses, saving may feel impossible. Don't let your current financial situation keep you from saving. Even a small amount of money saved can add up. Setting aside $200 per month is an excellent place to start.

Here are two ways you can put $200 per month to great use as you work to reach your financial goals.

1. Earn free money as you establish an emergency fund

A solid emergency fund can save the day when you must cover an unexpected cost. If you don't yet have an emergency fund, it's never too late to start building one. By contributing $200 each month, your fund will add up throughout the year -- $2,400 is a solid amount of cash.

Since most checking accounts don't earn interest, keeping your extra funds in a savings account is smart. One option is a high-yield savings account. Many of the best high-yield savings accounts offer annual percentage yields (APYs) of 4.5% or more. With this type of account, you can access the funds at any time without penalty.

Our Picks for the Best High-Yield Savings Accounts of 2024

Product	APY	Min. to Earn
American Express® High Yield Savings Member FDIC. APY 3.90% Rate info 3.90% annual percentage yield as of December 11, 2024. Terms apply. Min. to earn $0 Open Account for American Express® High Yield Savings On American Express's Secure Website. Member FDIC.	3.90% Rate info 3.90% annual percentage yield as of December 11, 2024. Terms apply.	$0	Open Account for American Express® High Yield Savings On American Express's Secure Website.
Capital One 360 Performance Savings Member FDIC. APY 3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening. Min. to earn $0 Open Account for Capital One 360 Performance Savings On Capital One's Secure Website. Member FDIC.	3.80% Rate info See Capital One website for most up-to-date rates. Advertised Annual Percentage Yield (APY) is variable and accurate as of Dec. 6, 2024. Rates are subject to change at any time before or after account opening.	$0	Open Account for Capital One 360 Performance Savings On Capital One's Secure Website.
Western Alliance Bank High-Yield Savings Premier Member FDIC. APY 4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY. Min. to earn $500 to open, $0.01 for max APY Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website. Member FDIC.	4.46% Rate info The annual percentage yield (APY) is accurate as of November 7, 2024 and subject to change at the Bank’s discretion. Refer to product’s website for latest APY rate. Minimum deposit required to open an account is $500 and a minimum balance of $0.01 is required to earn the advertised APY.	$500 to open, $0.01 for max APY	Open Account for Western Alliance Bank High-Yield Savings Premier On Western Alliance Bank's Secure Website.

So, how much extra cash can you earn from interest as your cash sits in the bank? If you keep $2,400 in a high-yield savings account with a 4.5% APY for one year, you'll earn around $108, depending on how frequent the interest is compounded. That's much much better than earning $0 by keeping it stashed in your checking account.

Your balance will grow if you continue to put $200 per month into your account. You'll also benefit from compound interest, which is interest earned on interest. This could be an excellent way to put $200 per month to good use as you work to improve your finances.

2. Focus on long-term growth by investing your extra cash

Another option is investing. However, you should know there's no guaranteed return when investing your money. You'll need to be comfortable taking risks and remember that returns can fluctuate. But investing can produce good returns. Over the last 30 years, the stock market has had an average annual return of around 10%, as measured by the S&P 500.

Investing using a tax-advantaged retirement account could be a good option if you already have a sizable emergency fund. One option is a traditional IRA account. With this type of account, your contributions may be tax deductible. Plus, your earnings won't be taxed until you take a distribution. You can open a traditional IRA with a brokerage firm.

Are you wondering how much your money can grow as you invest your extra cash to save for your retirement years? Let's imagine you decide to invest $200 per month for the next 30 years. Here's a look at the potential account growth after 10, 20, and 30 years with an 8.5% annual rate of return using the compound interest calculator from Investor.gov.

Don't delay saving for your future

It's never too late to start saving for the future. Whether you choose to put your savings toward building an emergency fund or focus on long-term growth by investing for retirement, your future self will be glad that you prioritized your personal finances. Even if you can only afford to set aside $200 per month -- it's worthwhile to get started now.