Once you get out on your own, it quickly becomes evident why parents continually encourage saving money. Opening a bank account to “save for a rainy day” long ago became a childhood rite of passage, but although you might have started saving at a young age, we often mislearn how to save. Most people learn from their parents, who frequently say to save your extra money. That’s not all you should save though, so let’s unlearn the bad money lessons and redirect a new savings attitude based on the correct way to save, so you always have money for life’s not so little emergencies.
How to Build Your Savings Account the Right Way
In step one of how to save smarter, you open a savings account. Choose a high-yield bank account like those offered by Varo Bank. High-yield savings accounts pay between 2% and 5% interest on your savings, so you earn money on your money. Your bank pays you to put money in your savings account.
Next, you set up an automated deposit to your savings account of at least 10% of your pay. If you get paid every week, so does your savings account; if you get paid monthly, 10% of your paycheck goes into the savings account automatically. When your savings account reaches the point that in an emergency, you could live off it for six months, increase your monthly savings to 20% because you’re doing well financially, and you can. Ideally, everyone puts 20% of their monthly income into savings, but when you first start out, that can prove tough, so work up to it.
Activate any roundup feature your bank offers, so you put a few cents to a dollar of each purchase you make into savings. Financial institutions like Acorns and Varo offer this feature, which lets you save money without thinking about it. Although typically small amounts, using this process typically results in saving an extra $5 to $10 per week.
Make a Budget so You Don’t Dip Into Savings
Make a budget and stick to it, so you don’t dip into your savings every week to pay for everyday items like groceries. Some people place all of their paychecks into savings to start with, so they earn interest on all the funds. They move money from savings to checking according to their budget to make the most out of their funds. Some people keep most of their money in a checking account for easy spending and only place in savings, the “rainy day” money.
Using either method, use a budget and stick to it. Finance gurus set percentage guidelines for each category, such as housing (rent or mortgage). Here’s the breakdown of the ideal budget:
- Housing – 30%
- Utilities – 7%
- Food – 15%
- Savings – 20%
- Transportation – 10%
- Personal – 3%
- Giving – 10%.
Medical – 5%
You might notice that, ideally, debt doesn’t exist. Of course, most people have at least one loan or credit card, so you must reduce the expenses in one or more areas to pay off the debts. A big part of knowing how to save smarter comes from being able to determine the difference between a need and a want. Cut your wants from your budget, or reduce them significantly until your savings account and budget reflect that you can regularly afford them.
Situations Where You Need Extra Money and Where to Find It
You’ve established your high-yield savings account, made your budget, and begun saving the correct way. What happens if a situation occurs where you may need extra money on hand, but your account hasn’t yet reached that wonderful status of $1,000? Here’s how to handle the most common situations, so you can continue to save smarter and handle the situation.
1. You Need an Attorney
Many everyday occurrences cause a need for an attorney, such as a speeding ticket, DUI, car accident, or divorce. Contact your municipal courthouse to inquire about legal aid in the area. Most municipalities offer legal aid services that either provide attorneys to those who cannot afford them or charge a sliding scale fee for legal services. Some law schools offer legal clinics, offering the services of third-year law students supervised by a professor who has litigation experience.
If those options don’t exist in your area, contact each attorney who takes cases such as yours, i.e., DUIs, and inquire about their rates. Ask about financing plans or potential discounts. Also, ask if they take cases on a contingency basis, meaning they take the case and perform their duties, but only get paid when and if they win the case. When they win, you obtain a settlement; most personal injury attorneys offer contingency payment.
In some cases, an estate planning attorney may take a case on contingency. If one of your loved ones dies, and you may inherit money or other assets, an estate planning lawyer might represent you either in probate or contesting the will of the deceased. Phone each attorney with this specialty and ask for a free consultation, so you can explain the case and your need to delay payment.
2. Your Home Requires Emergency Repairs
When you avoid dipping into your savings for minor emergencies, you save smarter and have the funds ready for major emergencies. Needing heating repairs rides the fence of a minor or major emergency, depending on the time of year. If you genuinely lack savings and barely pay the bills, contact your county’s or city’s Community Action Agency (C.A.A.). The C.A.A. offers assistance with cooling and heating utility payments and repairs.
Phone your utility company to find out if it received L.I.H.E.A.P. funds for the year and if it’s accepting open applications. You can only use L.I.H.E.A.P. funds to pay utility bills for heating or cooling, but receiving these funds opens up your monthly budgeted amount for your utility payment for repair use. Although the funds all come from the federal government, each municipality sets its own application process and schedule.
The C.A.A. can also help with items like roofing repairs or insulation. If a storm damages your home, call or email this agency to inquire about emergency repairs. If your locale lacks a C.A.A., contact each roofer in the area to find out about their repair discounts or if they offer financing.
Automobile or Motorcycle Repairs
Many individuals depend on their motorized transportation to travel from home to work and back again each day. Stick to your goal to save smarter by contacting your auto insurance company first to find out if your policy covers the damage. If it does, you only need to pay the deductible for the repairs and the insurer pays the rest. But what if it doesn’t cover it?
Perhaps the auto-damage occurred to the transmission due to wear and tear, not an accident. Contact transmission repair companies for repair estimates. Specifically, ask what a rebuilt transmission would cost instead of a new one; also ask about the possibility of using a used or salvaged part. Both of these options let you save smarter on big repairs and can apply to nearly any part, including engines.
If those options don’t pan out, contact your local high school or vocational school. Ask if their shop classes teach auto mechanics or motorcycle mechanics. If so, talk to the teacher about using your vehicle as a teaching project. Students would repair it under the supervision of their teacher.
You’ve Experienced a Medical Emergency
For a major medical issue, go straight to the hospital, but for minor medical issues, such as cuts, scrapes, or even bone bruises, save smarter by heading to one of the country’s many urgent care clinics, also called minor emergency clinics. Many health insurance companies require the use of these as a first-line option for minor emergency injuries. These clinics offer many of the same services as hospital emergency rooms without the expense.
Also, check your telephone directory for nurse practitioners in your area. A nurse practitioner ranks higher than a registered nurse but ranks lower than a doctor. They can diagnose conditions and write prescriptions like a doctor can, but can’t perform surgery, among other activities that doctors perform. They charge much less than an emergency room, so you save money on your treatment.
You Need to Make an Emergency Trip
Whether a family member passes away or someone gets hurt and needs you to care for them, you can save smarter on every aspect of the trip. First, while everything remains fine, join Priceline. Despite the commercials to the contrary, it does typically offer the lowest airline and hotel rates. Set up your account now and include your extended family members on your account, so you can all work together to attain what the brand refers to as “VIP Status,” which offers deeper discounts.
Save smarter on pet care, such as doggy daycare services or boarding your cat, by creating a services trade group. Make a deal with two or three other friends who also keep pets that you’ll pet sit for each other. This pre-planning saves you hundreds or thousands of dollars, but also does so for the others in the group. By looking out for each other’s fur friends, you help each other save smarter and live better.
Save Smarter When Buying a House
Negotiating for a better price offers one way to save more money when buying a house. Homeowners who sell their homes themselves, instead of hiring a real estate agent, typically overvalue their homes. Negotiate their listing price to buy your next home at a lower price.
Those who list their home through an agency, or an independent real estate agent, often offer a much more accurate listing price based on comparable homes (comp homes) sold in the same neighborhood or town. They sometimes drop the price by $1,000 to make their listing hit the top of the list in apps like Zillow and Homes if they’ve offered it for a few weeks to a month with no serious offers. Wait for these drops in price to save money.
In some cases, a real estate broker will offer a break on items like escrow services or other closing costs by giving up a percentage of the money they’d receive for their commission and bonus. This can help a home buyer whose bid came close to the seller’s desired price to afford the home. Closing costs usually come to between % and % of the total home sale value.
Save on Heating Your Home for Winter
Instead of relying on constantly fluctuating natural gas prices, switch to butane or propane heaters. You could find a propane service that lets you decide when to buy, so you can nab a bulk purchase at a great price. Otherwise, shop around your local home hardware and home improvement stores, plus camping supply stores for deals on cans or canisters of propane or butane. Stock up on these gases while prices remain low, so you can save money all winter long.
Switch to solar power or wind power for bigger savings. Either of these two options can provide your electricity with only a one-time installation cost. Contact your local utility company to find out which one offers a more viable alternative in your area, then make your switch.
Repairing After Fire Damage
Don’t let fire damage ruin your enjoyment of your home. Check the websites of each of your local fire damage restoration services for coupons and service discounts. Phone each one to find out if they offer financing for their services.
Once you’ve got the place cleaned up, hire a contractor to do the framing work, but do the drywall hanging, painting, etc. yourself. You’ll save thousands of dollars and earn a sense of accomplishment. Make upgrading your fire alarms part of your renovation.
Get Started Saving Smarter Today
Start on your journey to save smarter today by opening a savings account and earning money today on your deposit. Interest accrues daily, although it may pay monthly or annually. Put your money to work for you, so you have more of it when you most need it.