Courtesy Bank of America
Over the past year, most people have noticed how truly unpredictable life can be. While it’s impossible to predict what the next few months have in store, practicing a few fundamental financial skills can help you and your family prepare for whatever comes next.
“According to a survey by Bank of America, 42% of Americans say their top financial goal over the next three months is to increase their savings,” says April Schneider, head of consumer and small business products at Bank of America. “The pandemic has highlighted the importance of building a safety net. Whether you’re looking to improve your current financial habits or starting from scratch, the most important thing is to make a plan that fits your needs and to stick with it.”
Consider these tips from Schneider:
Track your expenses. Review your expenses, big and small, and separate them into categories like groceries, transportation, utilities and entertainment. Then total the amounts in each category to get a better picture of your monthly expenses. Knowing how much you spend each month is the first step toward finding money to save.
Make a plan and set a budget. Categorize your expenses into wants versus needs. Groceries, rent and mortgage payments are examples of needs while streaming services are a want. Compare your expenses against your total household income to figure out if you have money left over to save or if you can find money to save by reducing your spending on nonessentials. For example, keep an eye out for phantom charges––or reoccurring payments––you may no longer need and redirect that money into savings.
“If you’re already saving, that’s great,” Schneider says. “Review your behaviors and see if there’s room for improvement. It’s also not too late if you haven’t begun saving––everyone has to start somewhere.”
Also keep in mind your budget is meant to adapt with your circumstances, so make sure you’re updating your budget as your life changes.
Make savings automatic. Saving can fit seamlessly into your everyday life when you set up automatic transfers from a checking to a savings account. Take a look at available tools for other ways to save, like the Keep the Change program, which rounds the change up to the nearest dollar for everyday purchases you make with a Bank of America debit card and transfers the difference to your savings account. Saving automatically helps prepare you for the future without adding to your to-do list. You can start small by automatically transferring a few dollars each week.
Build an emergency fund. Take a look at your current expenses versus total income to identify any extra wiggle room where you can save. Next put your emergency savings in a separate, but accessible, account to avoid temptation and accidental overspending.
“When building an emergency fund, I recommend saving enough money to cover three to six months of expenses,” Schneider says. “Contributing to an emergency fund keeps saving a priority and ensures you have financial flexibility should the unexpected occur.”
Use spending tools for savvy savings. Being a better saver means becoming a smarter spender. While looking for deals and price shopping can be helpful, there are times when it’s better to spend a little more for quality. For example, buying a more costly refrigerator may pay off in the long run compared to buying a cheaper option that could break down after a few months.
Another way to be a smarter spender is by earning rewards on your everyday purchases. Whether you’ve seen your costs shift from in-person to delivery services, using a card that adapts and rewards your spending can be a valuable asset. With an option like the Bank of America Cash Rewards credit card, you can earn 3% cash back in a category of your choosing, such as dining, and redeem rewards in a way that’s best for you. For example, according to survey data, the average customer spent $172 on food or delivery services in July 2020––up 63% from the previous year. As a Preferred Rewards member, you could boost your credit card rewards by 25 to 75%. Simply by redeeming your rewards into your Bank of America savings account, you can put more money away for the future by making everyday purchases. While you may not know what the future holds, planning and actively taking steps can help you feel more secure and prepared for whatever it brings. Find more tips at bettermoneyhabits.com.