How to Save More Money in Hawaii
Reading time: 4 Minutes
May 2nd, 2021
You've done the hard work of creating a budget, which helped identify how much you have each month to put toward savings. But knowing how much you can afford to save and learning how to save money are two different things.
To help you bridge the savings gap, you can use a simple process:
- Save for emergencies.
- Identify your short, medium, and long-term goals.
- Build good saving habits.
Utilizing these three steps can teach you how to save money every month.
Step 1: Save for Emergencies (a.k.a. Your "Rainy Day" Fund)
According to Bankrate, on average, the cost of an emergency is around $1,000 and almost 30% of U.S adults experience a financial emergency annually. However, only 41% are able to cover that cost from their savings.
Now, you've probably heard this before, and we're here to say it again, 'you need to have an emergency savings fund.' An emergency savings fund is an account that is only used for unforeseen and costly events that can wreak havoc on your budget. For example, job loss, a trip to the emergency room, a major car repair, emergency pet surgery, or a funeral for a loved one requiring a trip to the mainland.
While you might think putting the emergency expense on a credit card is a solution, think again, as 1/3 of Americans say they are still in debt from borrowing to pay for their last emergency. Without an emergency fund, you're putting your financial future and your credit at risk.
To avoid these things, creating an emergency fund should be a priority. Experts tend to recommend having emergency savings equal to three to six months of living expenses. While saving that much could seem like a daunting task, you don't have to save it all at once. To jump-start your emergency fund, try setting up an automated transfer from your checking to savings account each month the day after payday. Before you know it, you'll have a solid cushion to help you absorb life's surprises.
Step 2: Identify Your Short, Medium, and Long-term Goals
After you've established your emergency fund, take the time to list out other goals you need to save for. One strategy is to divide your goals into timeframes needed to save for each and categorize by short, medium, and long-term goals.
Short-term goals are those within the next one to three years. From getting a new TV to taking a long-awaited family vacation, short-term goals need to be kept in account types that protect your principal (the amount of money deposited in your account) and earn a modest reward for your savings. With goals so close on the horizon, you won't want to take any risks with your money so look for accounts with guaranteed interest.
Medium-term goals are those coming up in the next three to 10 years. These could include saving for a down payment on a home or new car. Unlike short-term savings goals, medium-term goals allow you to look at accounts with a moderate risk level since you have a longer window of time to save. These include accounts that either ask for a larger upfront cash deposit or that don't offer a set interest rate, in exchange for a greater rate of return.
Long-term goals are those more than 10 years away. These goals include retirement and college savings and let you take on higher-risk investments since you may have time to recoup any potential losses from economic and market downturns.
To help you prioritize your savings goals, think about the goals that would benefit the most from you starting a savings plan now (needs, like money for retirement and education). Then, consider the goals (wants, like a new TV) that might be nice to have but aren't going to drastically improve your financial security. Knowing which goals are which can help you prioritize how you save money.
For more on how to categorize, optimize, and save for short, medium, and long-term goals, read here.
Step 3: Use Money-Saving Tips to Build Good Saving Habits
Once you've started saving for your emergency funds and have a list of your short, medium, and long-term goals, it's time to figure out how to save money for each. The money-saving tips below can help you easily save for any goal. And remember — no matter how much money you have available to save, all saving starts somewhere.
- Automate. Set up automated deposits to your different savings accounts the day of or day after payday. It's one of the best ways to save money each month because you are getting your money into savings before you have the chance to spend it.
- Set small goals. No matter the size of your savings goal, the amount you need to save can look intimidating when you haven't started yet. When you set small goals it's a lot easier to see and appreciate your progress.
- Reward yourself. When you achieve your small goals, take a minute to celebrate. Whether it's a dinner out at a favorite restaurant or something small like a vase of fresh-cut flowers to admire throughout the week, hitting your savings goals is always celebration-worthy. And it just might give you the motivation you need to keep up those good savings habits.
Sometimes the hardest part about saving is getting started. However, understanding the fundamentals of saving (establishing an emergency savings fund, identifying short, medium, and long-term savings goals, and creating good savings habits) will help turn a potentially overwhelming process into a manageable and achievable one. Now that you have an overview of how to save more money, read Money Saving Tips: How to Navigate a Sea of Savings Options to learn which savings options are best for your short, medium, and long-term goals.
Legal Disclaimer - Investment and insurance products are not FDIC insured, not bank guaranteed, not a deposit, and may lose value, including loss of principal.
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