Setting a Goal and Making it Happen
Setting a savings goal means deciding specifically why you are saving the money. Are you saving for a vacation? A new car? To prop up your emergency fund? Or perhaps you’ve got a new baby on the way and want a financial safety net so the new mom can stay home for a while.
Having a specific purpose in mind gives you an idea of how much you need to save. For example, if you estimate that your vacation will cost $5,000, then you know that’s how much you want to save if you want to avoid going into debt.
If you have children, you might want to get them into the act of saving. Even though families in the U.S. don’t have the option of opening an account similar to the junior ISA in Britain, which has specific tax benefits for child savers, U.S. parents can still open a regular savings account for their children. Unlike the Junior ISA, though, a savings account allows you to have more control over the money.
Once you have a savings goal and an amount set, the next step is figuring out how you’re going to go about saving that amount.
If you have the extra money in your budget, the choice is easy. If you are spending most of your disposable income on dinners out, concerts, movies and other activities, cutting out a few of these every month can add a bundle to your savings. For example, a couple that cuts out a dinner and movie once a month could easily save an extra $50 to $75.
If you don’t have a lot of room in your budget, saving additional money can be a little harder. You may have to resort to cutting nonessentials, such as paring down your cable service or giving up a gym membership. Or you could resolve to divert a portion of your annual raise directly to savings.
Another option is to try to boost your income. If your job offers the option of overtime, look into whether you can work more. Or you may put in more time to try to boost your commissions.
If you don’t have that option, you might have to think about getting a second job. If you don’t want to go the traditional route, you might try freelance work if you have specific skills that are in demand such as photography or website design.
Where to Put your Money
Once you’ve got the particulars squared away on how you are going to save your money, it’s important to think about where you are going to put it.
A savings account is a logical choice, but these days interest rates are downright paltry, with the average in the U.S. being less than 0.5 percent. That pales in comparison to the rates paid for a Junior ISA, which are as high as 3 percent.
If you don’t need the money right away, you could invest in a certificate of deposit to get a slightly higher cd rates. Or you could put the money in a bond fund or money market account, but those accounts aren’t government-insured and come with some risk.
Whatever you decide to do with the extra money you are saving, it’s important to get started now. Set your goals and sock the extra money away. You’ll thank yourself later.
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