Your Financial Life

The Key to Financial Health - Start Saving

By Lynn Carlson | Johnson Financial Group

7 minute read time

While most people recognize that saving is an important part of financial health, it’s often easier said than done. According to a recent Bankrate survey, only 25% of Americans have an emergency fund large enough to cover six months of expenses. Other studies have confirmed that roughly half of Americans are struggling or will struggle with retirement due to inadequate savings.

Advantages of Saving

In addition to preparing for unforeseen circumstances, saving can provide a better future for you and your family, offer you more flexibility to do and buy the things you enjoy, and even improve your overall quality of life. When buying a home, for example, saving for a larger down payment can decrease the overall cost of your home over the life of your mortgage. Setting money aside early for your child’s education may set them up for greater success later in life, while saving to pay off debt can put more money in your pocket for future priorities. The list goes on.

Whether you’re just starting to save or have fallen out of the habit, it’s never too early or too late to take the first step toward achieving your financial goals. No matter where you are on your savings journey, Lynn Carlson, VP, Consumer Banking Regional Manager, outlines several key savings vehicles and considerations to help you achieve your short, mid and long-term financial goals.

Getting Started

Especially in times of uncertainty, it’s more important than ever to focus on saving. And a new year may be the best time to start. Take a fresh approach to saving with these tips:

  1. Find your “why”. Once you know what you are saving for, you can determine the best savings vehicles to help you achieve your goals. From small savings goals to retirement or anywhere in between, first identify what’s important to you.
  2. Build healthy financial habits. Building healthy financial habits requires discipline upfront, but you’ll thank yourself later. Small behavioral changes form long-term habits that can make a great impact over time.
  3. Make it easy on yourself with automated savings. Make your first deposit and keep it going through automatic deposits. Using separate savings accounts for different goals may help you avoid temptations to spend money. Digital banking solutions make it quick and easy to track and manage your money.

Your Emergency Fund – Set it and forget it

Before saving for other goals, most experts recommend setting aside three to six months of living expenses. The emergency fund is intended to cover your day-to-day living costs in the event of unexpected home repairs, medical bills or lost income if you or your spouse were to lose your employment. The money should not be touched except in cases of emergencies. Using a “set it and forget it” approach can help you avoid the temptation of withdrawing money unnecessarily. Although the benefits may not be immediately tangible, you’ll have a safety net to lean on should you face unforeseen expenses or a change in circumstance.

Jumpstart your emergency fund

When you receive unexpected cash through additional sources of income, consider allocating a portion of it into the emergency fund. This might include pay raises or bonuses, economic impact payments, tax refunds, or even monetary gifts.

Short-term goals

After you have established an emergency fund, you may have other short-term goals such as saving for a new vehicle, phone, furniture or another item you’d like to attain in the next few years – or even months. Here are a few savings tools to consider.

Traditional Savings Account

A traditional savings account is the most basic saving option, providing a flexible way for your money to grow. Consider setting up a separate savings account to jumpstart your funds for near term purchases.

Grow your money with interest - A savings account typically offers more interest than a checking account.

Easy Access - The funds are liquid, meaning you can use or withdraw the money at any time.

Money Market Account

A Money Market Account is another low-risk savings option suitable for short-term savings goals, particularly your emergency fund.

Grow your money with interest - A Money Market Account typically offers higher interest than a traditional savings account, allowing more opportunity for your money to grow.

Easy access – Like a savings account, a Money Market Account provides easy access to withdraw your funds.

Other Requirements – A Money Market Account typically requires a higher minimum balance than a traditional savings account.

Mid-term goals

In addition to savings account options, you may want to choose other savings vehicles to help you achieve longer term goals, such as buying a home, making home improvements, planning a wedding or paying off debt. Learn more about Certificate of Deposits (CDs) or CD Laddering.

Certificates of Deposit (CD)

A certificate of deposit typically has a higher interest rate than a traditional savings account, generally meaning the longer term you choose, the higher the interest rate and potential return. The main question you should ask yourself when considering a CD – or any savings vehicle – is “What are my plans and when do I need to access this money?” If you are in a financial position to do so, a CD can be a great method to grow your money.

Flexible Terms - You as a saver agree to deposit money in the account for an arranged period, with terms generally ranging from three months to five years.

Grow your money with interest - A CD typically has a higher interest rate than a traditional savings account and is protected by the FDIC, making your money a low-risk investment.

Less liquidity - A CD is not intended to be a transactional account. The money is less liquid, and there are penalties for withdrawing money before the maturity date.

CD Laddering

CD Laddering is a strategy of investing money evenly into several CDs, each with a different maturity date.

Grow your money with interest – Once your ladder is established, you can choose longer-term CDs with higher interest rates.

Liquidity - Staggered maturity dates enable penalty-free access to a portion of the money on a frequent basis.

Flexibility - When a CD matures, you’ll have the opportunity to reinvest the money.

Long-term goals

Long-term goals may include saving for your child’s future education or planning for retirement. Consider the following savings tools.

Saving for a child’s education

The high costs of college make it imperative that parents make saving for college a priority not only to be prepared, but to lessen the need for college loans. Among the most popular college savings vehicles are 529 plans to help you prepare for the cost of tuition or college expenses. The money grows tax-free and can be withdrawn tax-free, provided it is used for qualified educational purposes.

Saving for retirement

There are multiple ways to build your nest egg, depending on your career and the retirement savings plans that are available to you. Among the most common are 401(k) plans, which allow your employer to deduct money automatically from your salary for you to invest. If you do not already contribute to a 401(k), now may be a great time to start, especially if your employer offers a match. Individual retirement accounts (IRAs) are available to those who do not have access to an employer-sponsored plan. 

Speak with an advisor

Keep in mind there is no one-size-fits-all approach to saving. Everyone’s financial journey looks different, and a financial advisor can help you get where you want to go. Contact one of our experienced advisors to help you assess your savings goals and financial priorities.

ABOUT THE AUTHOR

Lynn Carlson

Lynn Carlson

VP Consumer Banking Regional Manager | Johnson Financial Group

As Vice President, Consumer Banking Regional Manager, Lynn focuses on the delivery of a high quality client experience at each of the 14 retail banking offices in Racine and Kenosha.