Let’s face it: saving money is hard. And sometimes, it feels like you can never quite save enough. But, you’re not alone. According to CNBC, only 44% of Americans can afford an unexpected $1,000 emergency. A savings account is important to plan for life’s big events, prepare for unforeseen circumstances, and give you a foundation to invest and make your money work. So while having a plan to hit your savings goals is critical, it’s much easier said than done.
So whether you’re looking to reduce your grocery bill or pay off debt, we’ll look at how to use SMART goals to reach your financial goals.
Ways to save money the SMART way
Anyone who has tried to save money knows it can be a challenge. It seems like unexpected expenses are constantly popping up, making it much more difficult to stick to a budget. However, a few simple strategies can help you save money smartly.
1. Set SMART savings goals
By setting some SMART goals, you can put some money aside and get on the path to financial security.
SMART stands for Specific, Measurable, Achievable, Realistic, and Timely. In other words, your goal should be clear, quantifiable, achievable, reasonable, and have a timeline. For example, you might transform a goal into a SMART goal like this:
- “I want to save more money,”
- “I will save $50 from each paycheck over the next year.”
Breaking down your goal into smaller steps can make saving money less daunting and more attainable.
2. Open dedicated savings accounts
Have you ever heard the saying, “failing to plan is planning to fail?” When it comes to saving money, this couldn’t be more true. If you want to make headway on your financial goals, it’s crucial to have dedicated savings accounts for each goal.
For example, if you’re looking to retire early, open a retirement account and start contributing as much as possible (make sure you’re taking advantage of any employer matching, too!). Or, if you’re hoping to take a dream vacation soon, start a vacation savings jar and set aside money each month.
Having separate accounts for different goals will help you focus on the specific things you hope to achieve. Some savings accounts offer special benefits like tax-free contributions that help you achieve your financial goals faster.
3. Automate your savings
One of the best ways to save money is to automate your monthly savings to ensure you always have money set aside for your financial goals. You can set up periodic transfers from your checking account to your savings account or even a direct deposit from your employer.
By automating your savings, you can put your savings contributions on autopilot and avoid spending money on non-essentials.
4. Assess your progress frequently
When it comes to financial planning, one of the most important things you can do is check in on your progress regularly. This will help you see whether you are on track to reach your goals and determine what changes you need to make.
For example, you may find that you can afford to save more each month. Or you might find a better way to allocate your money more aligned with your objectives. By assessing your progress frequently, you can ensure you make the most of your money and achieve your financial goals.
Types of savings accounts
Some savings goals require specialized accounts to maximize the potential financial benefits. For instance, if you’re saving up for a costly medical procedure, a HSA (Health Savings Account) would be a better option than a high-yield savings account since the HSA lets you use pre-tax dollars. Here are some common savings accounts you can use to achieve your SMART financial goals.
Traditional savings accounts
Traditional savings accounts typically offer a lower interest rate than other investments but are much less risky. Savings accounts are FDIC insured, meaning your money is protected if the bank fails. Traditional savings accounts are a great way to get started saving.
High-yield savings accounts
A high-yield savings account offers a higher interest rate than a traditional one. High-yield savings accounts offer rates of around 1.5%, compared with the national average of just 0.2% for traditional savings accounts. They’re generally safe and FDIC-insured, so the higher interest rate may make them a more attractive option than traditional savings accounts. However, high-yield savings accounts often have higher minimum balance requirements and lower withdrawal limits than traditional savings accounts.
Certificates of deposit (CDs)
A certificate of deposit, or CD, is a type of savings tool that typically offers a higher interest rate in exchange for a fixed amount of money deposited for a set period.
CDs are FDIC-insured and can be a safe way to grow your savings. However, you won’t be able to access your money until the CD matures, so choose an account with a term that suits you.
Money market accounts
A money market account is an account that offers higher interest rates than a traditional savings account. These accounts typically require a higher minimum balance than a conventional savings account, but they may offer features such as check-writing privileges and ATM access. Money market accounts can be a good option if you don’t mind keeping a higher balance.
HSAs and FSAs
Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), are savings accounts that allow your money to grow tax-free and can be used to pay for healthcare expenses. HSAs are available to anyone who has a high-deductible health insurance plan. FSAs are similar to HSAs but managed through an employer. One major benefit of HSAs and FSAs is that you can contribute pre-tax dollars from your paycheck, thereby reducing your taxable income and the amount of taxes taken out of your income. The money in these accounts can be withdrawn tax-free and used to pay for doctor visits, prescription drugs, and dental care. Review the rules and stipulations of HSAs and FSAs before you open one.
Retirement savings accounts
IRAs and Roth IRAs
An IRA, or Individual Retirement Account, is another account to where you can contribute pre-tax money. With a traditional IRA, you eventually will pay taxes on the money when you take a distribution from the account.
A Roth IRA is similar, but you contribute post-tax money. But remember, the benefit of a Roth IRA is that you can withdraw your money tax-free in the future. Both are great options for long-term retirement savings.
401k and 403b
401k and 403b accounts are employer-sponsored retirement accounts that allow your money to grow tax-free. You can draw upon a 401k or 403b after retirement.
Final thoughts on SMART savings
There are many ways to approach saving money. By using SMART goals to make a plan to build your savings and opening dedicated savings accounts, you’ll be saving money in one of the most effective ways and setting yourself up for success at every stage of your life. Assessing your spending habits is an essential aspect of saving.
Julep is not a financial institution, financial advisor, or credit repair company, and does not provide credit repair services of any kind. The information provided is for general educational and reference purposes only. The information is not intended to provide legal, tax, or financial advice. We do not propose any guarantee that the information provided will repair or improve your financial profile. Consult the services of a competent licensed professional when You need financial assistance.