Freeing yourself from worrying about expenses, especially in times of a global health crisis is not as easy as pie. It requires dedication and a budget. A designated savings account is one way to help ease the financial burden.
When you have a specific goal in mind, such as retirement, a rainy day fund, or a new car, it is easier to save when you have a separate account for that purpose.
Why designate a savings account?
There are several reasons to designate a savings account:
- You are more likely to save when you have a specific goal in mind.
- It is easier to keep track of your progress if your money is all in one place.
- When the time comes to use the money, it will be less tempting to spend it.
How to Effectively Designate Savings Account
1. Determine how much money you need to save on a monthly or yearly basis.
If you are trying to save for a specific goal, such as a down payment on a house or a new car, you will need to calculate how much money you will need to safe keep each month or year. This number may vary depending on your income and expenses.
It is important to be realistic when setting your savings goal. If you are trying to save for a down payment on a house, you may need to adjust your goal if the prices in your area are higher than you anticipated.
If you are trying to save for retirement, you will need to factor in how much money you will need to live on each month.
2. Create a budget and make sure that your designated savings account is included.
Once you know how much money you need to save on a monthly or yearly basis, it is important to create a budget and make sure that your designated savings account is included.
Your budget should include all of your regular expenses as well as your monthly or yearly savings goal. This will help you keep track of your progress and ensure that you are not spending more than you can afford.
Budget Tracker Apps
Keep track of your spending and savings with these handy apps:
- You Need a Budget (YNAB)
These apps can be helpful in keeping track of your progress and ensuring that you are sticking to your budget.
3. Automate your finances so that a fixed percentage of each paycheck goes directly into your savings account.
One of the best ways to make sure that you are saving money is to automate your finances. This means setting up a direct deposit from each paycheck into your savings account.
If you are paid biweekly, you may want to consider setting up a biweekly savings plan. This means that you will save half of your monthly savings goal each paycheck.
4. Resist the urge to spend money impulsively – only withdraw from your designated savings account when necessary.
It can be tempting to spend money when you see something that you want. However, it is important to resist the urge to spend impulsively and only withdraw from your designated savings account when necessary.
This will help ensure that you are able to save money effectively.
5. Treat your designated savings account like any other bill – send payments consistently.
Just as you would with any other bill, make sure to treat your designated savings account to deposits consistently. This will help you stay on track with your saving goals.
You wouldn’t want to mess with your credit score by missing a payment on a bill, so why not save a bit of money each time you pay off your credit card? This will help get you in the habit of saving each month.
6. Resist the temptation to dip into your savings for unnecessary purchases.
There will be times when you are tempted to spend money on unnecessary purchases. However, it is important to resist the temptation to dip into your savings for these items.
If you find that you are struggling to resist the urge to spend, it may be helpful to set up a separate account for discretionary spending. This way, you can still enjoy your hobbies and activities without jeopardizing your savings goals.
What to do if you have trouble sticking to your budget?
If you find that you are having trouble sticking to your budget, there are a few things that you can do to make it easier.
- First, try setting up automatic transfers from your checking account into your savings account. This way, you will not have to think about making the transfer each month.
- Second, consider using cash instead of credit cards. This will help you keep track of how much money you are spending and make it less likely to overspend.
- Third, create a goal for yourself and find someone who can hold you accountable. When you have a specific goal in mind, it is easier to stick to your budget.
- And finally, don’t be afraid to ask for help if you need it.
The benefits of having a designated savings account
Before designating a savings account, you must be fully understood that its benefits come with certain conditions. When these conditions are not met, the account will likely be less effective.
The benefits of having a designated savings account are:
- Easier to save money as compared to not having an account at all.
- Money is saved for specific reasons, such as retirement or a rainy day fund, which makes it less likely to be spent frivolously.
- The account holder has complete control over the account and can deposit or withdraw money at any time.
- The account holder can choose to have the account attached to a specific checking account for easy access.
Other ways to save money in case of an emergency
Religiously setting aside a specific amount of money into your savings account each month is not the only way to save for an emergency. You can also consider other methods, such as:
- Having a side hustle – can help you generate extra income in case of an emergency.
- Putting money into a high yield savings account or certificate of deposit (CD) – these accounts offer relatively low-risk returns and can be helpful when you need to save money quickly.
- Making use of a credit card with a 0% APR – will allow you to borrow money without accruing interest for a set amount of time.
With these plans in place, you’ll be better prepared to face any financial challenges that come your way.
If you want to make the most of your savings, consider creating a designated savings account. This will help you stay on track and make the most of your money. With a little bit of planning, you can easily maximize your effectiveness and reach your financial goals.
Wishing you the best in your saving endeavors!