Have you ever met someone who said “I don’t need to save any more money.” Didn’t think so.
If you want more money in your savings account, there’s only one way to get more money there: put it there. It sounds so simple it hurts, but beyond the simplicity of saving (just do it) there are four things that actually DO matter:
Liquidity means how quickly you can access your cash. The more easily and quickly you can get withdraw your money, the more liquid it is. A savings account at your bank is the most liquid place to save because you can withdraw your cash at any ATM and have instant access to your cash.
Conversely, an online savings account, while still a great place to save, is less liquid. These banks, such as Synchrony, American Express, HSBC are FDIC insured and typically offer higher returns than your local bank.
Online banks do not have the overhead of a physical location. For example, my Chase savings account earns .01% while my American Express Savings account earns 1.55%. The downside to my American Express account is that it takes a few business days to transfer my money to my checking account, meaning it’s less liquid than my Chase savings.
Now let’s talk about return. The higher your return, the faster your money will grow and they more you will have as time goes on. Your “rate of return” is what your bank pays you to deposit your money into their bank. It can (and will) change over time based on how the economy is performing.
How about fees? Obviously the less you pay to bank the better. If you are starting with a small amount, say $100, and you plan to make small contributions each month that’s great! Just make sure you have an account that doesn’t cost you money to save. $12/month to save $100/month is steep. Find another place to bank. Some banks waive their monthly fee if you maintain a certain daily balance. Be sure to find out what that amount is and avoid fees whenever you can.
Interest earned in a savings account is taxable. That’s right, depending on your tax bracket and how much interest you earn, your earnings may be subject to income tax. It’s for this reason that you want to keep savings separate from retirement contributions.
Retirement contributions should go into a bona fide retirement account such as an IRA or 401(k) to take advantage of tax deferred and tax sheltered growth. More on that here.
My favorite place to save right now is in my CNote account. It’s a free, FDIC insured account with a 2.5% return guaranteed. Now I know you’re thinking, “2.5% AND free?” Yes, it’s true and here’s why: CNote is an online savings bank that allows quarterly withdrawals. In other words, there is a penalty to withdraw more than once a quarter, making my money less liquid.
I use my CNote account to store my emergency savings and quarterly taxes. I also like that this account is “out of sight, out of mind.” I only see my balance when I log in, which is once/month. It’s always growing even though I’m no longer contributing to it, and it’s not a factor in my daily spending or forecasting. It’s an account I will always have with just enough in it to keep me going in case I want or need to take time off working for a few months.
That being said, because of liquidity, return, fees, and interest, I have multiple savings accounts all working for me in one way or another. I have extremely liquid savings earning a low return in my Chase savings account, moderately liquid savings earning a moderate return in my AmEx savings account, and (not very) liquid money earning a high return in my CNote account.
Your goal when opening ANY savings account is to get the highest possible return, the lowest fees, and the most liquidity. Yes, I want you to have your cake and eat it to, just like I am. Read on to see how you can eats lots of cake too.
Now that you know where to save, here’s how to save. Pay special attention if you
- don’t know where your money went last month. Or the month before. Also before that…
- are carrying a balance on a credit card
- don’t have an emergency savings account
- are not on track to stop working one day (retirement, y’all!)
These are ways to save more, save more often, save more easily, save automatically, and save in the right places. Hang on to your panties! Here we go!
The deal is this: money is meant to be spent. If you don’t earmark it for something, it will get spent. That’s just the way it works.
Money-smart people set up monthly, recurring, automatic transfers and bill-payments sending their money exactly where it needs to go each month to make the most impact (such as savings, investments, a business, education, yourself, real estate.)
Not-so-money-smart people spend all the money that flows into their checking account without giving any of it a purpose.
Instead of “spending” all your dollars each month, you’re going to “send” all of your dollars. ALL OF THEM. To emergency savings. To Girls Trip to Greece savings. Bills. Expenses. To retirement accounts. To investments. To “fun money” accounts. To down payment accounts. To debt elimination. You get the picture.
Every dollar should have a pre-determined purpose before it hits your account. This requires actually thinking about where you want your money to go before it hits your account, got it? Spend five minutes at your kitchen table before you get your next paycheck and think about what you want to do with it.
Here’s the deal: when it comes to building wealth, every day you are either creating it or not creating it, depending on where you’re directing your dollars.
How much money you make does not matter. What matters is how much you keep. I know plenty of people who made a lot of money and have nothing to show for it. And I have worked with many people who don’t make a lot of money but have created wealth with just $200/month.
When it comes to saving, just doing it is number one. Beyond that, I’ve used the three strategies below over the past few months and my savings accounts have never looked better. I hope they can help you too.
Save in multiple accounts and give each one a name
You are saving for multiple reasons right? Probably you get way more excited to save $100 for your trip to Greece next year than your emergency fund, even if you did have to say no to that dope pair of boots.
Chances are you want more than an emergency fund. You want the ability to move when/if you want, to go to your friend’s wedding in Hawaii, to change jobs, to start your own thing, to take Fridays off, or work from home half time.
WhatEVER it is, naming your savings accounts has been shown to boost your saving more than 10%. Give your brain a reason to connect delayed gratification (trip to Greece next year) to an immediate choice (dope boots) by naming your savings account Girls Trip to Greece!
Give yourself an allowance
I discovered Chime last year and it has changed my life! It does two things I totally love and has made budgeting super easy.
The first thing Chime does that I love is it acts like a modern day cash system but with a debit card. With Chime I NEVER overspend, because I can’t. Here’s how it works:
I calculate how much I swipe for each month, basically anything I don’t pay with a bill. Call it $1500. Things I swipe for are groceries, gas, new clothes, concerts, drop in yoga, concerts at Red Rocks, coffee, gifts for friends, museums, cash withdrawals. The spending varies month to month, because one month I might eat 10 tacos and the next month I might eat 20. Regardless, who wants to keep track of that? Not me.
So I give myself an allowance. I prefer a monthly amount because I use a monthly cash flow to manage my money but you can choose a weekly amount, etc. Whatever works for you. Maybe it’s based on when you get paid.
But basically with a budget I can eat all my tacos at once or spread them out, but I am allowed 15/month. Got it? Now we’re budgeting.
How did I choose 15 tacos? Well I want to save $200/month. So I looked at my budget and decided I could shave a few tacos a month, lower my cable bill, make coffee at home 3 days a week, and increase my income by $100/month and that would give me the $200 in savings.
If you’re thinking this way too, you can put your $200 in one account or spread it out to all of them (Greece trip, emergency savings, down payment, new apartment security deposit, etc.). That’s up to you. However, as an Accredited Financial Counselor® I must tell you to focus on your emergency savings first 😉
Each month I transfer my $1500 allowance, aka my variable spending, aka all the things I swipe for, each month, to my Chime account. I ONLY CARRY MY CHIME CARD with me when I leave the house. I can never overspend because all my credit cards, debit cards, ATM cards, etc. are at home in their file. I can only spend as much money as in my Chime account.
Auto round-up and save
The second thing I love about Chime is their auto round-up and save feature. It makes saving painless, simple, and automatic. When you turn on this feature, Chime automatically rounds up transactions to the nearest dollar and save the change in a free Chime savings account.
I use the money that has built up in my Chime savings account for periodic expenses that come up every few months like car repairs, trips, dues, subscriptions, etc.
I <3 Chime.
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