Tackling the Price of Paradise: Savings Strategies for Better Money Management
Reading time: 3 Minutes
May 14th, 2021
We don't have to tell you that it's expensive to live in Hawaii. In fact, Honolulu is one of the top 3 most expensive cities in the U.S. to live in. That's why, for Hawaii residents, having a budgeting and savings plan is so critical.
In this savings series, you've learned how to identify short, medium, and long-term savings goals and how to build good savings habits in How to Save More Money in Hawaii, you've also learned the best savings account options to support your savings goals in Money Saving Tips: How to Navigate a Sea of Savings Options. Now we will look at actionable ways to save in an environment as expensive as Hawaii.
While the idea of saving enough to buy a home, pay for school, retire, or even just live comfortably seems daunting, utilizing even one of the tips below is a great place to start.
Tip #1: Automate
"Out of sight, out of mind" is a good rule of thumb for all your savings goals, which is why automation is an important tool for helping you stick to a savings plan. By setting up automatic transfers from your checking account to savings, you'll keep the money you've earmarked in your budget for savings dedicated to savings, not spending.
To get started with automated savings, set your paycheck up for direct deposit and use your payday as a savings guide. Either the same day or day after your receive your paycheck, schedule an automated transfer from checking to each of your savings accounts, including your IRA.
Tip #2: Divide and Conquer
If you're working on multiple savings goals, one of the best ways to save money is to keep separate savings accounts for each of your goals.
For a short-term savings goals, like the vacation you plan to take next year, it might be best to open a Certificate of Deposit (CD), which will earn a higher interest rate than a basic savings account.
And for long-term savings goals, like retirement, opening an Individual Retirement Account (IRA), can act as a tax-advantaged (meaning you can either defer or receive exemption from paying taxes on money in this account), automated savings solution with the ability to withdraw money after a certain age without penalty.
Tip #3: Get Creative
If you're curious how to save money when you might not have a lot to save each month, a little creativity can help you grow your savings over time.
For example, if you're saving for a child's college education, try a strategy like the 52 week challenge. In the first year of your child's life, put $2 per week in a savings account for 52 weeks, the following year, make it $4 per week. Keep doubling each year, and by the time your child is 18, the most you will have put into that savings account is $36 per week and you will have saved almost $18,000, even more if you opened a CD, money market, or other long-term investment account with higher interest offerings.
A little bit each week can have a big impact over a long period of time. And this strategy doesn't have to be just for tuition. You can apply it to any long-term goal (even a down payment on a house).
For 50 more creative ways to save in Hawaii, read here.
Tip #4: Don't Leave Free Money on the Table
Take advantage of employer-sponsored retirement plans and accounts with compound interest.
If your employer offers a retirement plan, especially one where they'll match a percentage of your contributions, be sure to participate. Your employer is essentially offering you free money to help with your retirement savings. Even without a match, employer-sponsored retirement plans are great ways to expedite your savings through utilizing automated deposit, the ability to compound interest, and lowering your taxable income.
For those without an employer-sponsored retirement plan, you can still save for retirement in an IRA. While there's no match, you can still build your savings through the compounded interest over the years.
The same holds true for money you put into even a basic savings account. Your bank is paying you to save your money. Why pass up extra cash if it's yours for the taking?
While saving in a place as expensive as Hawaii can be difficult, the tips above can help get you started. Bank of Hawaii also knows the challenges first hand and has a number of accounts to help with your savings goals. Learn more about savings account options here.
Legal Disclaimer - Please note, this material has been prepared for informational purposes only, and not intended to provide legal, tax, or accounting advice. Consultation with a legal, tax, or accounting advisor is advised.
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