Finances FYI Presented by JPMorgan Chase
Pre-saving money on payday instead of spending is a fantastic way to reach your savings goals and build an emergency fund.
Some people might call it “paying yourself first.” This means allocating money each pay cycle to a savings account to achieve future financial goals — not taking funds to splurge or spend.
Whether you’re saving to retire early, travel, buy a car, buy a house, or start a college fund, saving money first with each paycheck can help you reach your financial goals.
Follow these pre-saving tips to get started.
How to Set Savings Goals
As you start saving, build an emergency fund first that covers three to six months of living expenses or unexpected expenses, like replacing a major household appliance, making car repairs, or carrying you through a layoff while you look for a new job.
With a solid emergency fund in place, setting savings goals can help you achieve your future financial goals. To help ensure the most success, set very specific goals instead of having a “rough idea” of how much you want to save.
Instead of thinking, “I want to save more,” set a specific dollar amount and a deadline to meet that goal. For example, write your goals in a notebook or planner and say, “I want to save $5,000 for a down payment on a car.”
Next, set a realistic deadline for achieving your savings target. In the car example, if you want to save $5,000 in one year, you need to save $417 each month. If that seems impossible, you might want to extend your timeline or find ways to increase your income or cut expenses to achieve it.
Open Multiple Accounts for Each Savings Goal
It’s a great idea to open multiple savings accounts for different savings goals. Many financial institutions allow customers to put money in multiple savings buckets for each goal, like a car fund, vacation fund, or house fund, to name a few. This also keeps your finances organized.
How to Pre-Save Money Every Payday
The easiest way to pre-save money every payday is to set up an automatic transfer from your checking account to your savings account via your direct deposit paycheck from your employer.
You can also ask your employer’s payroll department if they can split your paycheck and direct deposit designated dollar amounts into multiple bank or investment accounts.
Either way, electronic savings transfers are seamless and help you avoid spending impulses and learn to live with less money in your net pay.
Use Visual Savings Trackers to Monitor Your Progress
Setting and sticking to savings goals is a huge commitment. If you truly lock into the process, reaching your savings targets is a terrific reward.
Using visual savings trackers enables you to monitor your progress. There are various tools to help you visually confirm whether your savings targets are on track.
Here are some examples:
- Use an electronic spreadsheet, like Excel or Google Sheets. You can set up columns for the date and amount you save and create a formula to calculate a running total.
- Manually write your savings amounts in a bullet journal. Some people prefer putting pen to paper to record their progress visually. You can use a bullet journal to list your savings goals, deadlines, actual savings amounts, and create a to-do list.
- Download a mobile app like PocketGuard or YNAB (You Need a Budget) to track your expenses and savings on demand.
- Start an envelope system by putting specific amounts of cash into envelopes you dedicate to each savings goal. Bear in mind that saving cash this way eliminates an opportunity to earn interest on your savings in a bank, money market, or investment account.
- Create a visual savings chart, such as a bar graph or pie chart, and color in the sections/bars as your savings accumulate.
- Leverage your bank’s online spending and savings tools. Many financial institutions create graphs and diagrams that categorize your expenses and track your savings goals.
Cut Expenses to Hit Savings Goals
If your finances are tight or you need to hit your savings goals quickly, you may need to cut expenses or boost your income with a side hustle.
Reviewing bank statements and using budgeting apps can help identify overspending and list where your money is going.
Consider cutting digital streaming or magazine subscriptions, limiting takeout meal expenses, and tightening your entertainment budget. Eliminating frivolous, unnecessary, or impulse spending can free up more cash to put into savings.
When it comes to saving money first each payday, following these tips will help you set and achieve your savings goals.
