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Follow these 2 easy steps to start saving more money today

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Alex Thomas Sadler, Clark.com

Americans have never been known to be great savers — and it’s not that people don’t understand the importance, it’s just not a top priority for most people.

New data shows that nearly 25% of American adults have nothing saved for an emergency. What’s worse is that about 32% of people between the ages of 53 and 62 have zero in an emergency fund — meaning one unexpected expense could cause serious financial damage, like being forced to borrow from retirement accounts.

Saving for an emergency isn’t really the fun type of saving — like, say, saving up for a big purchase or vacation — which is part of the reason why people just aren’t doing it.

Another big reason people ignore it is because they simply don’t realize how damaging an unexpected expense can be until it’s too late.

In fact, more than 40% of Americans “either experienced a major unexpected expense over the past 12 months or had an immediate family member who did,” according to Sheyna Steiner, Bankrate.com’s senior investing analyst. “This proves that an emergency savings cushion is more than just a personal finance cliché…”

So assuming it won’t happen to you is a very bad idea.

Instead, there’s one very easy way to minimize the damage of an unexpected expense — prepare for it!

The risks of not saving enough money

Regardless of your income, there are always ways to reduce costs in order to put money away into savings.

One big problem many people face is the psychological barrier — prioritizing present needs and wants over future needs — no one expects an emergency to come up, so it’s easy to assume that there will always be more time to save later.

But this is a really bad mindset to have, for two reasons. First, time is money. The earlier you save, the more time your money has to grow. So even if you save a lot of money down the road, it still won’t be worth as much as the money you save now.

Second, emergencies do happen — and the reality is, if you don’t have the money to cover it, one unexpected bill can end up causing you major, long-term financial damage.

Read more: 11 places to never use a debit card

In fact, it’s very often smaller, unexpected expenses that can cause you big problems — things like small car repairs, home maintenance and health-related bills. But if you aren’t prepared and have to cover it with a credit card, those small bills can quickly turn into big debt.

“Our analysis shows that most families will be faced with a significant and possibly destabilizing unexpected expense at some point, said Clinton Key, a researcher for Pew’s financial security and mobility project. “It’s critical for families to build emergency savings.”

Read more: How to increase your income by reducing expenses

Step 1: How to get into the habit of saving money

Pay yourself first!

Regardless of how much money you make, if you don’t make saving part of your routine and monthly budget, you will very likely reach the end of the month and realize you’ve spent what you had planned to save.

So do it before anything else. Figure out what you can afford to save each month (which may require reallocating the budgetand/or reducing costs), and then have that money sent automatically into savings so you don’t give yourself the chance to spend it.

Bottom line: your financial well-being should be your #1 priority — and paying yourself first forces you to make that happen.

If your budget isn’t working, here’s a step-by-step guide on how to create and stick to a budget that works for you.

Step 2: Get more out of your hard-earned savings

If you’ve been with the same bank for years, it’s time to reevaluate your options — especially if that bank is one of the monster mega banks (JPMorgan Chase, Wells Fargo, Bank of America and Citigroup).

If you shop around for the best deal at different financial institutions, there’s a good chance you’ll save some money.

According to a recent Consumer Reports survey, 38% of people said they have a second bank or credit union they do business with, because they “were able to get better rates for some services and products at other institutions than their primary bank or credit union.”

Most people stick with the same old bank because they just don’t want to deal with the hassle of moving everything — but it can be a lot easier than you think.

How to get 100x more out of your savings

Online banks have started offering higher rates on savings accounts — much higher than the current rates at traditional, bigger banks — so why not just move your savings to take advantage of the bigger return?

To give you some context, online bank ally recently increased the rates on its savings accounts to 1.15% — while the rate on a regular savings account at Bank of America currently sits at only 0.01%. 

That’s a HUGE difference. So even if you aren’t ready to switch banks altogether, at least moving your savings can earn you a lot more money.

Here’s a list from Bankrate of where to find the best savings rates.

If you want to get the most out of your money, here’s a guide on how to choose and switch to a better bank for you.

How to keep your savings on track

Once you get yourself into the habit of saving money, there are steps you can take to avoid big setbacks.

Don’t rely on credit cards

You should never use a credit card to cover the cost of an emergency. Credit cards often come with pretty high interest rates — so if you swipe a credit card to pay for an emergency, you will just end up facing a bigger bill down the road. And the bigger the bill, the longer it will probably take you to pay it off, which will then not only cost you more in interest, but could also damage your credit score.

One example is medical debt  — you don’t want to put an unexpected medical bill on a credit card. You’re much better off negotiating a payment plan with the hospital or provider — which you pay over time — than putting the bill on a credit card.

Another reason is because medical debt is now factored into your credit score differently than consumer debt, which is anything you put on a credit card. So an unpaid medical bill will no longer impact your credit score as severely as it would have in the past. And while ideally you don’t want any type of debt in your life, having a medical or hospital bill— instead of a credit card bill — is better for your long-term financial status.

Read more: 9 ways to find free money

Building an emergency savings fund

The best way to save for unexpected financial shocks is to have two separate emergency funds: a rainy day fund and an emergency fund.

  • A rainy day fund is money you might dip into every once in a while to cover an unexpected expense, like a medical bill.
  • An emergency fund is a bigger, longer-term savings fund. This money should be able to cover at least three to six months worth of living expenses in case you can’t work for a period of time, for whatever reason.

If you’re starting from scratch, these goals may seem impossible — but they aren’t. The best way to approach saving is to start with baby steps and then build up from there. Also, one important thing to remember about emergency savings is that the money should be easily accessible if you ever need it — like in a savings account. To help you get started on your savings, here are some tips, tricks and strategies you can put in place immediately.

4 ways to kickstart your savings

1. Reduce your expenses: There are tons of little ways to reduce your monthly expenses and still maintain your same lifestyle. From cable bills to everyday spending habits, here are some tips and tricks to immediately reduce your monthly expenses:

2. Increase your income: There are plenty of ways for pretty much anyone to earn extra cash. Bringing in some extra money each month can be a great way to fund your emergency savings without having to cut out other areas of your budget. Here are 29 easy ways to make extra cash each month.

3. Continue paying off debt: Don’t ignore the debt you already have — that will just end up costing you more and probably damage your credit score. Start with the credit card that has the highest interest rate and put as much money toward that debt as you can each month, while still setting some aside for your rainy day fund. Then once that card is paid off, move to the card with the next highest interest rate. For more guidance, see Clark’s guide to paying off credit card debt.

4. Keep it separate and make it automatic: Once you cut back on your spending and start to have some spare cash, it’s important to keep it in a safe place so you won’t spend it — because no matter how disciplined you are, if it’s there, it’s tempting. So if you don’t already have a savings account, open one. Then budget out how much extra money you will have each month and set up an automatic direct deposit from your paycheck for that amount. That way the money is put into savings before you have a chance to spend it.

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