That’s really great advice.
Key points
- It is important to have plenty of cash on hand for emergencies.
- If you’re struggling to save, one key change could help you be more successful.
- Set up automatic transfers from your check to your savings account, and you won’t even have to think about saving money.
You never know when an unexpected bill might land in your lap. You could drive out of your driveway only to have a flat tire and be stuck paying $100 or more to replace it. Or, you might wake up one morning to find there’s no hot water in your home and you’re looking at thousands of dollars to replace the water heater you depend on daily.
This is why having a good amount of money in your savings account is so important. In fact, as a general rule, you should make sure you have enough money in an emergency fund to cover at least three months of essential bills. The logic is that if you lose your job, these cash reserves could allow you to meet your bills while you look for work.
But many people struggle to build up savings, and that’s understandable. If you don’t earn a very high salary, it can be difficult to carve out money to save when other expenses are eating up your income. And even if your salaries are higher, you may still have to deal with a multitude of bills and obligations that make it difficult to save.
But if you really want to boost your savings, it’s worth following some sound advice from financial expert Suze Orman. In fact, she has a simple suggestion that could make your savings efforts much more successful.
Make it automatic
One of the main reasons so many people struggle with saving is that they don’t prioritize it. Rather, what they do is see how much their bills are each month, and then if there’s room left to save money, so be it.
But this approach to saving may not get you very far. And that’s why Orman insists that automating the savings process is a much better bet.
Many people participate in employer-sponsored 401(k) plans. The way these plans work is that they deduct a portion of your income (which you agree to in advance) for retirement savings purposes, so that by the time you get your paycheck, you already have saved something.
Orman thinks it’s beneficial to take the same approach to building short-term savings. Many bank accounts allow you to set up an automatic transfer from a checking account to a savings account. What you can do is arrange for a portion of your salary to be transferred to your savings account at the beginning of the month, before you have a chance to spend it. This way, you will get used to living on a smaller salary and you will be free to fully spend your remaining income knowing that you have already contributed to your savings.
A solid approach
The benefit of putting your savings on autopilot is that you put savings first. And so, if you’re struggling to grow your savings, it might be beneficial to automate the process.
This doesn’t necessarily mean parting with $300 a month upfront. If you don’t think you can afford it, start with an automatic transfer of $50 and see how it goes. The main thing is to move some invest in your savings regularly so you can reach your goals and have enough money to protect you from financial emergencies that may arise in the future.
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