Having a good savings plan can keep you one step ahead during changing, uncertain times. (Ft. Worth Tax Reduction Experts: Saving Money During Tough Times)
Here are a few things to think about to simplify your spending habits:
Create separate spending accounts for monthly costs
If you look at your bank balance and see $1,000 sitting there, you might think it’s a good time to make a big purchase. But you’re probably forgetting about the regular expenses that will eat up that cash.
Create a budget and then schedule automatic transfers to individual checking accounts for each of your major budget categories. You can do this by opening separate accounts for your biggest budget categories, such as food and housing.
A designated spending account is a place to stash the funds you need for a budget category that you spend in every month. For example, if you spend $600 on groceries each month, automatically transfer $150 a week into a grocery account. When you go to the store, take the card for that account. This will help you stay within your grocery budget, and it also protects your grocery money from being spent on other things.
Create sinking accounts for annual expenses
Sinking funds are accounts you set up to pay for things you know you need to save for.
For example, you know that your car is going to need maintenance every year. If car maintenance costs you about $1,600 each year, put $133 in the bank every month. Then you’ll be ready when you need to replace a muffler or get a tune-up.
Build a financial cushion by automating your savings
Use the same strategy for your savings — treat it like a bill and automate a transfer to your savings account every month.
Save several months of expenses in a liquid account, such a high yield savings account . Also, build savings before you pay off debt. Even though it feels counterintuitive, it makes sense to save first and pay down debt second. Only your savings can protect you in an emergency.
At the start of the pandemic, a lot of people were taking all of their extra money and paying down debt. That’s great, but only if you’ve saved an emergency fund first.
Saving first is the wise move. Otherwise, you could end up relying on credit cards the next time an emergency hits and be right back where you started. Or your credit card company might cut you off, leaving you with no backup plan.
Right now it’s important to try and just save in some kind of account that’s liquid, like a savings account. You could put money in [the stock market] today and the stock market could crash tomorrow. The market is volatile and it will probably be extremely volatile going forward.
Investment accounts are fine for long-term saving, but any money you might need in the next 12 to 24 months should go into savings.
Reevaluate your budget when your financial situation changes
Some blunt advice for those who have lost a job this year: Don’t run through your savings to maintain your living standard. We’re human and we’re very optimistic. We are overconfident.
While you might have the feeling that your luck will change “any day now,” that can turn into months. As an example, look at the beginning of the COVID-19 pandemic in the US. At first, it seemed like the changes would be for just a few weeks. Now, they have stretched to months with no clear end in sight.
Housing is the biggest expense for most people, so that’s a good place to cut back. If you can take in a roommate or move in with family temporarily, you give yourself a better chance of recovering financially in the long run.
Allowing yourself to be uncomfortable for a short period of time can make a drastic difference in your situation. If you can get by in this economy or go through a job loss without going through your savings, that’s ideal.
The pandemic isn’t all bad news, however. Whenever there is a major shift in the world, there are opportunities. Look for multiple streams of income. What are some other ways that you can make money right now?
Look into side hustles such as tutoring, child care, or helping people with virtual work. Even though there is lots of job loss out there and lots of people struggling, there really are opportunities if you do some research and look for them.
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Source: Business Insider