The first savings account to build is your emergency fund. The simplest way to build your emergency fund is to tie it to current expenses mentally. Save up enough to cover gas for the month, then save what you spend on groceries for a month. If your rent is more than $1,000 a month, make that your emergency fund goal. Next, consider setting up accounts for fun stuff that you will enjoy.
You Don’t Have to Rely on Credit in an Emergency
Life can quickly become unmanageable if you have no savings. For example, you may have a serviceable car that is paid off. However, if you have no savings, one semi-expensive repair can lead to 5 more years of payments. If you have savings, you can fix the car with no worries.
You can also use credit to your benefit with easily accessible savings. For example, you can put the car repair described above on a credit card that gives you cash back. Then, go ahead and pay off the card balance when the bill comes due with your emergency savings to lower the overall cost of your repair. Finally, you can roll the cash back right into your savings account and build the savings back up with what you would have spent on another car payment.
Celebrate Savings Instead of Spending
Many people enjoy a “rush” when they make a purchase. For example, if you were a determined shopper and miss that rush, celebrate saving milestones to reduce the temptation to shop every time you walk into a store.
The items you buy undergo several mark-ups before they get to the showroom floor. You will rarely buy anything that you will be able to sell for more money. If you need it, buy it and enjoy every aspect of owning it. If it will just make you feel guilty, skip the purchase and watch that savings balance climb.
Enjoy the Security
Your bank account is secured and insured. The item that you were just tempted to buy may not be. It could fall apart, wear out quickly, or suffer damage from use. Building your emergency savings may require taking on another job, starting a side hustle, or selling a possession. Do make sure to route the payments for that second job or side hustle directly into savings so you can celebrate that growth.
Next, create those fun accounts. According to the experts at SoFi, “You can set up different types of savings accounts to inspire you to put away funds for vacations, a down payment for a home or a new vehicle. If you need a credit card, get one that will allow you to roll your usage points into savings or an investment account.” Your SoFI (SoFi Bank) account could allow you to grow your money in several different funds.
Savings isn’t sexy or exciting. However, once you have savings in place, you have options and flexibility. Debt is a form of imprisonment that you can escape with savings.
