What do primetime TV commercials, Pinterest and Starbucks have in common? They all entice you to spend, spend, spend. In the name of America Saves Week, the overspending stops here.
The annual event is designed to spread the word about healthy financial habits while providing tips and tools to take control of your own savings plan. You can take their savings plan assessment, download a poster to keep your goals in focus or test your savings knowledge.
If nothing else, consider this a good time to evaluate your spending habits and savings. Whether you’re starting from scratch or well on your way, we’ve got a tip for you. Open a spreadsheet or log in to your favorite finance app, and take advantage of America Saves Week. Here are 5 ways to update to your savings plan.
1. Make a budget
Only 30% of Americans have a detailed budget. That means 70% of you should probably start here. There are dozens of apps, calculators and tools to help you build and track your budget, but really all it takes is a spreadsheet. The key is to actually put your budget into writing and be as detailed as necessary.
Review your bank account statements and make an educated guess at how much you’re spending. myFICO has a calculator that can help. Make sure to consider how much you’re putting into savings accounts. If it’s easier, you can categorize your spending into general groups like “housing” and “medical,” but pay attention to both small and large transactions. Even small purchases can add up to a huge expenditure.
Then, take the next 2-3 months to track your spending and adjust your budget accordingly. Consider using an app or tools offered at your bank to help you track and manage transactions. Anytime you have extra money, put some of it into a savings account.
2. Focus on building your emergency fund
Not to be the bearer of bad news, but eventually, no matter how detailed your budgeted, your car might break down, you might get the flu or you might spill coffee all over your laptop (been there!). An expensive emergency can completely derail your budget, good spending habits and even your FICO® Score. So instead of being surprised, assume an emergency will happen.
The amount of money you set aside is up to you. Many experts recommend at least $1000 – assuming you can cover most emergencies with that amount. Others recommend at least three months of your living expenses — in case you find yourself unemployed. Use our myFICO emergency fund calculator to get an idea of a number that might work for you. Put the money aside in a savings account, and only touch it if there is an emergency. Next time an expensive life event takes you by surprise, neither your retirement nor budget will have to suffer.
3. Set up an IRA or 401K… or both
If your company has a 401K matching plan, take advantage of the entire match—even if it’s uncomfortable. 401K matching is literally free money. There’s no better way to grow your retirement funds quickly.
If your company doesn’t have a 401K plan, open up an IRA or a similar account. Wisebread.com provides a detailed explanation of the different savings accounts that might be available to you. Take a look before you decide on an account.
Already have a retirement account? Consider opening another one. Keep an IRA that you can access tax-free in retirement, but also maximize your funds with 401K match. There are a lot of reasons to open both an IRA and 401K. Check out a few of them here.
That brings us to a much more complicated question: how much should I put away for retirement? Unfortunately, there’s no easy answer. A lot of experts recommend putting 10% of your income into retirement funds, but there’s no magic number. It really comes down to when you plan on retiring and how much you want to live off of a year. Luckily, there are a lot of great calculators out there to help you find an estimated number. But to get an idea, check out this infographic from MoneyCrashers.com, “How much to save for retirement—are you on track?”
4. Make a debt-payoff plan
Money you’re putting down on debt could be money you put towards your retirement, so it’s important to make a payoff action plan. Use the myFICO payoff calculator to figure out how much you need to be putting towards debt. This process may take a lot of time—that’s okay. The important thing is to be aggressive as possible. Some experts recommend paying off your smallest balance first so you can experience the emotional benefit of a quick success. Others recommend tackling the highest interest balance first as this will save you money in the long run. Whichever way you choose, keep at it! The end goal is totally worth it.
If you have a lot of credit card debt over several cards, consider consolidating your credit card debt with a balance-transfer card to make payments easier to manage. CompareCards.com provides expert advice on efficiently paying off your credit card debt.
5. Make it fun with small financial goals
Saving doesn’t have to be all about austerity. It’s your money, so why not have a little fun with it? There are plenty of fun things worth saving for that will still motivate you to turn down the daily $5 coffee. Come up with a fun, small goal that you can look forward to reaching. Consider saving for a vacation, a new bike, concert tickets or a home improvement project. Accomplishing the small goals makes saving more fun and really articulates the power of smart spending.
How are you participating in America Saves Week? Tell us below, and share this article on Facebook or Twitter to spread the word about smart financial planning.
Kelsey Havens is the Content Manager for myFICO.com