While U.S. savings habits are improving, nearly 50% of Americans have no more than $500 in the event of an emergency. Amidst the talk of a recession, now is an optimal time to focus on ramping up your savings. Every little bit helps! Consider these four actions to jumpstart your savings and start building wealth.
Track your expenses for one month to discover how much you really spend. Be sure to track everything, including food, utilities, subscriptions, household items and debt payments. Take your total expenses and multiply it by six. This is the amount of money to aim for saving in your emergency fund.
If you’re juggling credit card, vehicle and mortgage payments, your savings accounts may be starved. And without enough cash to cover emergencies, many people resort to credit cards and lines of credit to cover unforeseen expenses. So the debt cycle continues. With a budget in place, you can control your spending and see exactly how much debt you have to pay off.
With your current level of income, calculate how long it will take to pay off all your debt, then build up your 6-month emergency fund. Depending on your financial goals, consider whether it makes sense to start a side gig, or continue upgrading your current skillset, to further increase your income.
Now that you have a budget and a better view of your financial picture, it’s time to pay yourself first. You are your most important monthly bill. Set up a feasible recurring deposit into a savings account, no matter how small. If your employer offers a tax-deferred retirement plan, the power of time and compound interest can help your account grow in the long term, even if you start with a small contribution FROM each paycheck.
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