With wage growth at a standstill and debt levels increasing rapidly, it is more important than ever to have an effective savings plan in place. Most households currently have about 3% of their income dedicated to savings and many households have nothing at all saved for the future. With the number of competing interests increasing constantly, it can be difficult for someone to figure out how to save and how much they should be saving. Here are some tips that can help you create an effective savings plan.
Contribute To Your Employer’s Retirement Plan
Saving for retirement should be one of your highest saving priorities. If your employer offers a retirement plan where they deposit a matching contribution into the account for you, take advantage of the free money by contributing enough to receive the full employer-matching amount. This amount is generally up to a certain percentage of your income from the company. The amount that you contribute to the account is deducted on a pretax basis, so your contributions will also lower your tax burden.
Create An Emergency Fund
It is also important to have an emergency fund available that you can use in the event of financial emergencies. People that do not have an emergency fund available often find that they have to turn to expensive, high interest credit card debt when a situation occurs that they do not have the funds to handle. Having some money put away to use in these situations will prevent you from accumulating debt and putting yourself in a precarious financial situation.
Pay Off The Balance Of Your Credit Cards
Paying off the balance of your credit cards can help you save money in several different ways. You will be eliminating the payments that you must make each month to avoid defaulting on the credit cards, allowing you to dedicate more of your income to saving for your future. Paying off the balances also eliminates the cost of the interest payments you are paying to creditors for borrowing the money. Once your credit cards have been paid off, you can continue making the payments to your savings account, providing you with an easy way to save more without changing your current standard of living.
Save For Your Long Term Goals
Once the first three priorities have been taken care of, you can begin saving for your long term goals. These goals may include saving for your children’s college educations, saving to purchase a home or a car, saving for vacations, or any other goals that you find attractive enough to save some of your income for. Many banks will allow you to open specialized savings plans or fee-free savings accounts with no minimum balance requirements that you can use to save for these goals. Using these types of savings accounts allows you to remove the money from the account whenever you need to without penalty.