April 29, 2022

How to Maximize Savings

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Saving is a crucial piece of your financial health. Keep reading to learn 7 of the most effective strategies for maximizing your savings.

It's no secret that everything is incredibly expensive these days. And while earning more money is helpful, you can't neglect your savings.

So, what are the best, most effective ways to save more money?

In this guide, discover 7 tried-and-tested ways to maximize your savings and get the most out of the money you already have.

How to Maximize Savings

Saving is more than just spending less.

You must understand where your money is going and put your money to work. That means smart budgeting investments.

We'll go into all of that in detail below. Here are the best ways to maximize your savings.

1. Track Your Spending

To save as much as possible, you'll need to know where your money is going. That means tracking your spending with something like an online budgeting tool or money management app.

A good spending tracker will let you:

  1. See how much you spend on major categories like:
    • Food
    • Entertainment and leisure activities
    • Housing
    • Utilities

    You may be surprised by how much simply knowing where your money is going helps you spend more consciously.

  2. Set goals for major milestones like debt payoff and savings.

  3. Create reminders for bills and payments so you don't miss anything.

Most money management apps today can help you keep track of your spending with minimal effort on your part. And once you've set them up, it's pretty much just wait and watch the data flow in.

2. Build a Budget

Sometimes progress means drawing hard lines in the sand. That means building a budget.

If you know how much you can afford to spend on each category of your budget, there's less risky guesswork that can threaten your finances.

You'll know, in the moment, without a shadow of doubt, whether you can afford that new pair of shoes or that curvy monitor for your PC.

Try using a calculator to create your own, customized budget:

3. Make Sure You Aren't Overpaying

It seems like everything is a subscription these days. Movies, tv, music, podcasts, newsletters, articles, and beyond.

And they regularly increase in price, too. First, it's $11 a month. Then, it's $13. Then, $15. Maybe you even tack on Disney Plus, Hulu, and Paramount Plus.

How much of your paycheck is being siphoned out of your wallet without you even noticing? And how much are you being overcharged?

Apps like Truebill and Trim can help you cut your bills, find the places you're overpaying, and save you a whole lot of time and money in the process.

Check out our guide to the best money saving apps for more ways to cut costs and avoid overpaying.

4. Pay Off Debt

If there's one generation that knows about debt, it's ours. We're looking at you, student loans.

Paying off any debt, especially high-interest debt, is a huge priority. Otherwise, it can undermine all your savings efforts. Once you free yourself from debt, your savings efforts will go much further.

If you feel buried under student loans, here's a guide that might help. We've also looked at some of the best personal loans for debt consolidation, as another option.

And let's not forget credit cards. While some credit card debt is to be expected, too much can be a problem. Do your best not to live beyond your means, and pay off your credit cards before your billing cycle ends.

Your wallet will thank you.

5. High-Yield Interest Accounts and CDs

Now that you know how to address debt, budgeting, and spending, it's time to focus on helping your money grow.

Obviously, a pay raise would be nice. But in the meantime, you can start earning interest on your savings with a high-yield interest account or CDs.

High-Yield Savings
For the best rates on interest accounts, you'll probably want to look to an online bank like Ally.

Interest rates at most banks are at historical lows. But since online banks spend less money on overhead, they can pass those savings on to you in the form of higher interest rates.

CDs
Certificates of Deposit are widely available and offer higher-than-average interest rates in exchange for fixed-term deposits. You'll likely get the best rates for 5-year CDs, but many people opt for a range of terms in a technique called laddering.

Allowing your CDs to expire at different times means you'll always be earning, but will also have ready access to your money. Some banks also offer no-penalty CDs, so you can withdraw your money if you need to.

6. Invest

Investing can turn a modest nest egg into a big one.

The best way to invest depends on your goals and what sort of assets you're interested in. For beginners, apps like Robinhood for stocks or Coinbase for crypto can be an easy way to start investing in just a few minutes.

You should also consider an individual retirement account, or IRA, which can offer tax-advantaged savings and investing options.[1] IRAs are limited in what assets they carry, but if you know where to look, you can find one that works with gold, or crypto, or just about any other asset.

Remember: all investing carries some risk. It's important to never invest more than you can afford to lose.[2]

7. Interest-Bearing Checking Accounts

While checking accounts typically don't offer the same interest rates as savings accounts do, there are some high-yield checking accounts out there.

This can be an effective solution for the money you use for day-to-day purchases and paying bills. Unlike a standard checking account, an interest-bearing checking account can help you maximize your returns.

Banks like Ally, Axos, or Nationwide all offer users the potential to earn interest on their checking.

According to a 2020 report by the Federal Reserve Board, an estimated 5 percent of U.S. households did not have a bank account.[3]

Bottom Line

Maximizing your savings is a multi-pronged approach. The first step is plugging any holes that are costing you money.

That means paying off high-interest debt as quickly as possible, as well as making a budget and keeping track of exactly where you're spending your money. Just knowing can often make a difference in your behavior.

After that, grow your nest egg through investments, high-yield savings and checking accounts, and other interest-earning accounts. The savings game is a slow and steady one, but once you get started, you'll start seeing a real difference in your finances faster than you think.

References

  1. ^ Internal Revenue Service. Individual Retirement Arrangements (IRAs), Retrieved 4/16/2022
  2. ^ FINRA. The Reality of Investment Risk, Retrieved 4/16/2022
  3. ^ Board of Governors of the Federal Reserve System. Report on the Economic Well-Being of U.S. Households in 2020 - May 2021, Retrieved 4/16/2022

Jeremy Harshman is a creative assistant at CreditDonkey, a bank comparison and reviews website. Write to Jeremy Harshman at jeremy.harshman@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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