A Savings Strategy for Every Budget

Think Differently

How much are you putting toward your nest egg (you know, that extra money you stash for emergencies or retirement, not for a new fancy coat)? Chances are you could do better — about one-third of Americans have no retirement savings, and 26 percent have no emergency savings. But that can change if you start to think about money just a little differently.

Here are several strategies for strengthening your savings accounts — from the aforementioned nest egg to your retirement portfolio. We’ve included both small steps and big, radical changes, depending on what you need.

Focus on Your Emergency Fund

Good: Start writing down how much you’re spending so you can see where you’re going overboard, says Joan Sharp, CFP, CFT, founder and owner of Life Strategies, LLC. Don’t “criticize yourself or beat yourself up, but be honest with every cent you spend.” Tracking helps you rein in spending, you can use the money saved toward a goal of $5 to $10 per week for your emergency fund.

Better: “Open a line of credit for emergencies and leave it alone,” says Renee Rebelo, CFP, of Life Coach Financial. One example is a home equity line of credit, if you own your home. Another is a (mostly) unused credit card: Make sure you charge something on it every once in awhile and pay it in full so the plastic stays in good standing on your credit report.

Best: Start saving 10 to 15 percent of your income for savings, starting with your emergency fund, says Addie McHale, CFP, of Moneyfull.com. Remember that your emergency fund will actually protect your investments and savings accounts — if a crisis pops up, you won't have to dip into those accounts and pay early withdrawal penalties or compromise your future.

Perk Up Your 401(k)

Good: Call the company that holds your 401(k) to find out where your money is invested, says Katie Waters, CFP, of Stable Waters Financial. You might not have realized that someone can help you allocate your money — i.e., determine the mix of stocks and bonds in your portfolio — she says. When you do this, you’ll be better informed and have more control.

Better: When you’re poised to pour more into your retirement account, Water says it’s time to involve a CPA. Remember that “traditional 401(k) contributions are made with pre-tax dollars, so they lower your taxable income by the amount you contribute,” she says. A CPA can help you figure out how to get the biggest tax benefit.

Best: Maximize your contributions. If you can’t contribute the maximum amount, start with what you can afford and build from there. Pamela Plick, CFP, says that you should aim to “increase your contribution each time you receive a raise until you reach the maximum contribution.”

Improve Your Other Retirement Funds

Good: Have one or more old 401(k) accounts from past employers? Roll them over into an IRA, says Plick. There may be hidden fees attached to an old 401(k) once you leave a company (and you can’t contribute anything new to the fund). But moving the money into an IRA will give you more flexibility, Plick says, because you get more variety in terms of investment options and you can keep adding to it.

Better: Meet with a financial expert. If you’ve gone to the trouble of opening your own retirement account (see, freelancers or people whose jobs don’t offer 401(k)s), you’ll benefit from professional guidance. “So many people do the work of opening and contributing to a retirement account, but then don’t earn anything because they didn’t choose investments for their account — and often the default investment is cash or low-yielding government bonds,” says McHale. Instead, get some advice.

Best: If you’re maxing out your contribution to your company’s 401(k), add a Roth IRA to your portfolio, says Juge. While you pay taxes on the money you put into your Roth IRA, you get it back tax free if you withdraw it in retirement, and now you have another account that can grow over time.

Make Your Savings Work Harder

Good: Rather than trying to pinch pennies on a daily basis and save whatever’s left over at the end of the month, try bucketing your money. Put your disposable money (the money you have to spend on necessities like rent and food and luxuries like that new lipstick) into one account separate from what you plan to save from your paycheck. That way it’s harder to dip into your savings for unnecessary expenses.

Better: Check on the high-yield savings interest rates often, because “short-term interest rates can fluctuate, and some companies might be paying more than others at different times,” says Waters. You might want to move your savings if the interest is better, or you can call your bank to ask about its other options if a competitor has a better deal. If you do change banks or accounts, always check whether a bank requires a minimum balance or time period for the account so you avoid possible penalty fees.

Best: Plick recommends opening an online FDIC-insured savings account because online banks typically have better interest rates than traditional banks with brick-and-mortar locations. Compare rates and terms on sites like nerdwallet.com and bankrate.com.

Banish the Debt Sabotaging Your Nest Egg

Good: Work the phones. Do you have an unexpected bill — e.g., a medical bill — to pay? Contact your creditors, especially if you’re having trouble making payments, advises the Federal Trade Commission. You may be able to work out a modified payment plan.

Better: Pay off your smallest balance first. It’ll give you a killer sense of accomplishment. Use that motivation to tackle your next-highest debt, and keep going until you’re all paid up.

Best: Rid yourself of the debt with the highest interest rate — and that’s usually credit card debt. If you have two debts with equally high interest rates? “Pay off the one first with the lowest balance,” Sharp says. She’s found that paying off one completely is a better strategy psychologically than juggling two balances at once.

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