The coronavirus pandemic has made difficult times even harder for a lot of people. Even before the outbreak, plenty of Americans were already having a tough time building up savings accounts and retirement nest eggs. In a study published by the U.S. Federal Reserve in 2017, they discovered that 40 percent of adult Americans would not be able to pay for a $400 emergency expense.
In 2020, times were even tougher because of community restrictions and business closures. According to a survey of over 2,700 working adults, 32 percent reported they were out of money before their next paycheck arrived. This even includes people who are earning $100,000 a year.
With purse strings getting drawn tight and tighter, how can households on limited budgets manage to save up for emergencies or to pay for their mortgage?
Below are six effective tips you can use to build up a savings account even with a tight budget.
- Determine Your Goal
The first thing you need to do is determine what you’re saving up for in the first place. The goal can determine how quickly you need to save up and the methods you should enlist in doing so. For example, if you’re saving up for a retirement next egg, you have a little luxury of time because it’s a long way off. But if you need money for a medical procedure, you have to rustle it up quickly. You can have multiple goals, but you should always choose one to be your priority.
- Make a Proper Budget
After you have identified what you’re saving up for, you need to write a proper budget. But a study discovered that as many as 33 percent of Americans don’t budget at all. A good budget is necessary to monitor your expenses and earnings. Calculate how much you’re spending and how much money you’ve got coming in. You should have a positive number when you subtract expenses from your earnings. Otherwise, you seriously need to downsize your spending. Analyze your expenditures and see if what you’re spending too much money on and how you can reduce it. You should also take a look at your earnings and determine where you can make more.
- Cook at Home
If you want to reduce your expenses, one of the best methods you have is cooking your own meals. Although community restrictions and guidelines have put a damper on eating outside of your home, you may still be ordering too much take out food. The problem with this is there are a ton of added expenses on them.
For example, restaurants can grossly inflate their prices, not to mention the cost of traveling to them. Cooking at home means you’re in control of serving size and how expensive the ingredients will be. You also don’t have to pay for parking or delivery fees.
- “Paper Not Plastic”
Too many people have grown dependent on paying for their purchases with credit cards. However, the charges and interest accumulated by credit card debt can easily spiral out of hand. This is a real possibility given how easy it is to simply whip out your plastic instead of rooting around for bills. But you should start paying for products with cash if you want to save up.
Without the interest rates of credit cards, you’ll have an easier time squirreling away money and avoiding adding to your debt. When you pay cash, you’re also less likely to be so flippant about making expensive purchases, further helping you save up.
- Pay Off Debt First
When you are trying to save up for the long haul, the first things you need to take care of are your debts. Most debts have interest rates that can snowball quickly if you don’t make regular payments. There are also time-sensitive debts that need to be taken care of as soon as possible, like car payments.
Make a list of all your financial obligations and arrange them in order of time-sensitivity. Begin dividing your money between savings and paying off your debt. This will help you build a nest egg and reduce your debts.
- Decrease Subscriptions
If you want to get rid of another potential monetary drain, you should check out all the subscriptions you’ve signed up for. These can include streaming services, online newspapers, magazines and gym memberships. Individual subscriptions may seem affordable but taken together they may put a bigger dent on your budget than you thought. See what you can live without and whittle them down.
For example, you can stop gym membership if you can workout at home and you can choose to pay for only one streaming service.
Times are tough, but you can start saving up for a brighter future today. These tips will be instrumental in helping you ensure you can retire in peace or afford to pay for a medical emergency.