Essentially, to save enough cash to cover a large expense, you simply need to spend less money than you earn. It doesn’t have to be scary if you take a short amount of time to formulate a financial plan in advance. From defining your goal to utilizing a high-yield checking account and more, the financial experts at Capital Credit Union list below five tips to help you save enough money for your large expense.
1. Define a Tangible Savings Goal
Start by determining how much money you need to save and the timeframe you have to save that amount. For instance, if you’re hoping to take the whole family on vacation next Christmas, calculate an estimated total for plane tickets, hotel rooms, and other assorted expenses, such as entry fees for attractions. That’s your savings goal. Then figure out how soon you’ll need the money to get everything booked, and you’ll have your timeframe.
Next, write down that amount and date as a reminder. Write your financial goal somewhere that will be frequently seen so you are reminded and more likely to stay on target and reach your savings goal. You can write it on a whiteboard in your office or home, on a piece of paper that you hang on a wall or on the refrigerator, or on your calendar, for instance. You may also want to share your goal with a friend or family member. Choose what works best to keep you motivated. The end goal is to keep you saving money until your financial savings goal is reached.
S.M.A.R.T. Goals1You may have heard about setting a S.M.A.R.T. Goal, which is an acronym that stands for Specific, Measurable, Attainable, Relevant, and Timely. Setting this type of deliberate goal can be a helpful guideline when creating your financial savings plan.
Setting a specific and measurable goal means you define a set dollar amount as your financial target. This goal should be attainable. You never want to set yourself up for failure with a goal of a dollar amount that just isn’t possible within your financial means. It should also be relevant to your ultimate goal—in this case, your large expense. Finally, you should give yourself a specific length of time to reach that savings goal.
2. Use the 50/20/30 Budgeting Guideline
Utilizing the 50/20/30 rule allows for a bit more flexibility when creating a financial budget that includes a successful savings plan. With this rule, instead of setting specific dollar amounts for each category of your budget, you designate a set percentage of your income each pay period. It breaks down like this:
- The first 50 percent of your monthly income goes toward required items, such as food, rent, utilities, and healthcare. This is the “Needs” bucket of your financial budget.
- The next 20 percent of your monthly paycheck is for the “Savings” bucket. This includes items such as retirement accounts, college savings, and any large expenses you’re saving for.
Pro tip: It is a good idea to put your savings into a separate account so you aren’t tempted to spend it.
- The remaining 30 percent of your monthly intake goes into the “Wants” bucket to be used toward extras, such as dining out, entertainment, and purchases that are for fun. It’s important to make sure you are providing yourself with some money to enjoy your life so you don’t feel too deprived, as this can trigger a want to dip into your savings account unnecessarily.
For a quick way to find your Needs, Savings, and Wants dollar amounts, try this 50/20/30 calculator. Simply enter your post-tax monthly income, and the numbers calculate automatically.
3. Set Aside Your Savings Immediately on Payday
To remove the temptation of spending the money earmarked for savings, it’s good practice to immediately set aside those funds right when you receive them. Consider using direct deposit, if your employer offers this option, so you can automatically have 20 percent of your paycheck deposited into a separate account from your regular spending account.
4. Leverage Technology and Use Financial Apps
In the digital age, there are many apps that can be helpful with finances and budgeting. Consider downloading a budgeting app to help you keep on track each month. It is also a great idea to use your financial institution’s mobile banking app to make monitoring your progress more accessible.
5. Open a High-Interest Checking Account
A great way to increase your savings with very little extra work involved is to open a high-yield checking account. High-yield checking accounts typically offer free checking with no minimum balance requirement and the potential to earn much higher interest rates on your balance compared to other checking account options. While you take care of your day-to-day finances, your money can be earning additional interest and growing your savings, helping you reach your financial goals faster.
The ChaChing(™) Checking AccountAt Capital Credit Union, we offer members the ChaChing checking account. This high-yield checking account returns a higher interest on your balance if certain criteria are met by the end of the billing cycle each month. When you make a monthly direct deposit of at least $400, a minimum of 12 debit card purchases of at least $5 each month, and sign up for free eStatements, you will earn interest on your balance that is significantly higher than the average interest earned with a standard checking account. And if you don’t meet those requirements one month, don’t worry. You can meet them again next month with zero penalties.
Capital Credit Union has been helping people in northeast Wisconsin reach their financial goals since 1934. Contact us to learn more about savings and high-yield checking accounts, and start saving for your large expense today.