Step 1:

Savings Cleanse

Phong

PHUONG VUONG

UPDATED MARCH 2018

21K VIEWS

Saving doesn't have to be intimidating. It's something you can start today, and we can help.

Saving is your ticket to financial freedom. Whether you use the money you save to pay down debt, build an emergency fund, or build wealth, the feeling of not being controlled by money can be extremely liberating, if not Empowering. It can enable you to pursue the job you really want, buy your dream home, or simply take a much needed vacation.


This guide will focus on how to get started and help you identify the best savings accounts for your situation.

We'll help make getting started feel less intimidating, help you figure out how much you need to save, and make recommendations on where you should put your money. In future posts, we'll continue to talk about saving to invest, as a way to build wealth.

What accounts fit this bill? Here are a few savings accounts that we like and use ourselves:

Empower's Picks for Best Savings Accounts 2018:

How Much Do You Actually Need?

Most personal finance experts recommend having 3 to 6 months of living expenses stashed away for an unforeseen emergency. And if you have debt that you need to pay off, a savings account can be a great pit stop for your money as you accumulate enough to make your monthly debt payments. This way, you can earn some interest as each paycheck arrives. And automatically setting aside a portion of each paycheck as it hits your bank account is a great way to avoid the temptation to spend that money rather than pay down your debt.

For those of you who don't need as much as 3-6 months of living expenses or have any debt to pay down, lucky you! In that case, we would suggest starting to build your savings by choosing an amount that you won't miss while going about your usual routine, say $25-$50 a week, as a target savings amount.


How Do You Carve out the Money to Save?

If you have a steady job, the easiest way to carve out money for savings is to deposit a set percentage, or fixed dollar amount, of each paycheck. You may be able to do this through your employer's payroll system or apps like Empower can help set up this type of automatic savings for free. By carving out a little of each paycheck you earn, saving won't feel so daunting.

If you need to create more room in your budget, try adopting a change in your lifestyle, such as:

  • making your own coffee in the mornings rather than paying $4 at your local coffee shop,
  • finding a side hustle (babysitting, driving for a ride-share),
  • earning passive income (renting out your extra room or unused parking space), or
  • renegotiating your bills (cable, cell phone, Internet).

Who is This For?

Everyone! Whether you are deep in debt or you are already a millionaire, an emergency savings fund can serve as a valuable cushion during hard times. This 3 to 6 months of living expenses can be there for you in case of an unexpected layoff, medical expense, or other emergency (or, a downturn in the stock market if you are Warren Buffet :).

If you carry a loan balance, it probably makes sense to keep less money in your savings account and instead focus on paying down your highest interest debt first.


When Should You Start?

As soon as you can afford it, set up an automatic saving rule through your bank or the Empower app that automatically withdraws a percentage or fixed dollar amount from your checking account whenever your paycheck hits, until you reach your savings goal. Some employers give you the option to split your paycheck in different bank accounts. If you do this, the money you are supposed to save doesn't even hit your checking account, and goes straight to your savings.


What do I do once I have saved for my emergency fund?

Invest... we will write more on this topic soon!