What to save for

Nearly a quarter of savers who take the America Saves pledge chose “emergency savings” as their first wealth-building goal. And they have the right idea. Research shows that low-income families with at least $500 in an emergency fund were better off financially than moderate-income families with less than this amount. Yet most Americans don’t have enough savings to cover an unexpected emergency.

What is an emergency savings fund?

An emergency savings fund consists of at least $500, usually in a savings account that you do not have easy access to. Saving for this fund starts with small, regularly scheduled automatic contributions that build up over time.

Why should you start saving for emergencies?

Maintaining an emergency savings account may be the most important difference between those who manage to stay afloat and those who sink in debt. It also gives you peace of mind knowing that you can afford to pay unexpected expenses. That’s because keeping $500 to $1,000 of savings for emergencies can allow you to easily meet unexpected financial challenges such as repairing the brakes on your car or replacing a broken window in your house.

Not having emergency savings is one of the reasons many individuals borrow too much money, resort to high-cost loans, or increase their credit card balances to high levels.

How should you build your emergency savings?

The easiest and most effective way to save is automatically. This is how millions of Americans save. Your bank or credit union can help you set up automatic savings by transferring a fixed amount from your checking account to a savings account. Learn more about saving automatically. 

Where should you keep your emergency savings?

It’s usually best to keep emergency savings in a bank or credit union savings account. These types of accounts offer easier access to your money than certificates of deposit, U.S. Savings Bonds, or mutual funds. Though these are useful tools for long-term saving, they are not ideal for an emergency fund that you may need access to more quickly. But not too quickly! Keeping your money in a savings account makes it much less likely that you will use these savings to pay for everyday, non-emergency expenses. Out of sight, out of mind. That’s why it is usually a mistake to keep your emergency fund in a checking account.

Your local America Saves campaign can help you find a participating financial institution that offers low- or no-minimum balance savings accounts.

How can you get started?

Those with a savings plan are twice as likely to save successfully. This includes setting a goal to build an emergency fund and deciding how much you want to save each month. This is where we come in. If you’re ready to make a commitment to yourself to save, take the America Saves pledge to save money, build wealth, and reduce debt. We’ll keep you motivated with information, advice, tips, and reminders to help you reach your goal to build an emergency fund.

Think and acting like a saver not only means knowing what you’re saving for and how much it costs, but having a plan for building that savings. Whether you’re saving for a phone, a computer, a car, or college, this 41 second video from America Saves can help you get good savings habits started.

Being able to travel by car can help people earn more, spend less, and get better value in their housing. Cars, however, are relatively expensive to purchase and maintain. American households spend, on average, more than $8,000 dollars on car purchases and maintenance each year. Individuals can reduce this transportation expense by making wise purchasing decisions. Ask your bank or credit union if they offer car buying workshops or other services to help you with the auto purchase process.

Here are some helpful things to keep in mind:

• Consider whether alternative transport - mass transit, cabs, car sharing, rental cars, or a leased car - makes sense.
• In deciding whether to purchase a new or used car, make certain to estimate the difference in total costs.
• To purchase a used car, check the Kelly Blue Book price to learn what used cars in a certain condition usually sell for and comparison shop.
• If you need to take a loan out, learn about how much to borrow, where to get a loan, and information about rates.
• The larger your down payment, the lower your debt, interest rate, and interest owed. To start saving for a larger down payment take the America Saves below.

Retirement savings is a top priority for many Savers. Saving now for retirement will ensure that you have enough money to enjoy a comfortable standard of living when you stop or reduce the amount of hours you work.

You may be able to save for retirement at your workplace through a 401(k) plan. These accounts have many benefits including direct deposit from your paycheck, which automates the savings process and may include matching funds. Unfortunately, many do not have access to an employer-sponsored retirement plan, such as a 401(k) plan. Even if your employer doesn’t offer a retirement plan, you can still save for retirement, by putting money in an Individual Retirement Account (IRA).

Keep in mind that slow and steady wins this race. Even modest monthly contributions to a retirement account for 30 to 40 years can, in part because of the miracle of compound interest, easily lead to an accumulation of several hundred thousand dollars.

Getting out of debt is the #3 goal Savers select when they pledge to save. That does not come as a surprise since a 2012 survey showed that 45% of families with annual incomes under $50,000 rely on credit cards to pay for basic needs such as rent, utilities, insurance and food. Large consumer debts can also keep you from saving and building wealth.

The good news is that there is hope. With planning, discipline, patience, and maybe some outside help, almost anyone can reduce their debts and start to accumulate wealth.

Are you in Trouble?

If you answer “yes” to any of the following questions, then you probably need to get your debts under better control:

1. Can you only afford to make minimum payments on your credit cards?
2. Do you worry about finding the money to make monthly car payments?
3. Do you borrow money to pay off old debts?
4. Have you used a home equity loan to refinance credit card debts, then run up new revolving balances on your cards?

Saving for education is the second most popular goal (after saving for emergencies) savers select when they pledge to save with America Saves. There are many different things to factor in when saving and paying for college.

According to the College Board, the average cost of tuition and fees for the 2021–2022 school year was $38,070 at private colleges, $27,560 for out-of-state residents attending public universities, and $10,740 for state residents at public colleges. The average cost of room and board in 2021–2022 ranged from $11,950 at four-year public schools to $13,620 at private schools.

Here are some ways you can minimize the cost of college:

• Grants and scholarships are often called “gift aid” because they are free money – financial aid that doesn't have to be repaid. Grants are often need-based, while scholarships are usually merit-based.
• According to the College Board, the average community college costs $3,800 and the average student received enough grant to cover the typical tuition and fees. Attending this type of college for your first two years can save you thousands of dollars.
• Earning money while you attend school is one way to help keep costs down – especially if you don’t have enough saved to pay for college in full. Any money you earn is money you don’t need to borrow.
• Provides part-time jobs for undergraduate and graduate students with financial need, allowing them to earn money to help pay education expenses. The program encourages community service work and work related to the student’s course of study.

Here are some ways to save for college:

• A 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. 529 plans, legally known as “qualified tuition plans,” are sponsored by states, state agencies, or educational institutions and are authorized by Section 529 of the Internal Revenue Code.
• The Education Savings Bond Program permits qualified taxpayers to exclude from their gross income all or a portion of the interest earned on the redemption of eligible Series EE and Series I bonds issued after 1989.
• If you need to borrow money to pay for college or career school, start with federal student loans.

Almost anyone can afford to own a home with proper preparation. Develop a savings plan to build up money for a down payment at purchase, for moving expenses, and for post-purchase emergency expenditures such as needed home repairs. Remember, the larger your down payment, the lower your home loan payment. America Saves can help you develop a plan with regular monthly deposits in a bank or credit union account. At the same time, reduce your credit card and other debts in order to increase your ability to afford a house. Lowering these debts will increase your credit score and your chances of getting a lower-interest loan. For information about credit and help with debt repayments, contact your local, nonprofit consumer credit counseling service or housing counseling agency.

Get qualified for a home loan before you look for a house, condo, or co-op. That will give you some idea of whether you can afford to purchase a home and, if you can, at what price. Make certain you contact at least three lenders, including your primary financial institution. This will help ensure that you get the least expensive loan for which you can qualify. Be especially skeptical of uninvited loan offers you receive through the mail, by telephone, or online. In looking for a home, most home buyers find it helpful to work with a real estate agent. Consider using an agent that will work solely for you as a buyer representative. 

The larger your down payment, the lower your home loan payment. The most effective way to save a larger down payment is to set aside a portion of each paycheck. With direct deposit, your employer can split your paycheck between checking and savings accounts.  Or, ask your bank or credit union to regularly transfer a certain amount from your checking account to your savings account. Also, ask your financial institution about other savings products that can help you save more. If you need assistance finding money to save, check out our savings tips and strategies!

Oftentimes, individuals with disabilities may not be familiar with savings options that are available to them or they may be afraid to save money due to the fear of jeopardizing public benefits. There are a wide variety of saving strategies that individuals with disabilities can potentially access to achieve their savings goal and build their financial well-being.

At National Disability Institute, we focus on five key strategies that can assist an individual to build a life of work, savings and asset development.

The five key strategies, which create opportunities for individuals to learn more about savings, include:

1. Benefits Planning and Work Supports
   There are a variety of savings options that individuals can access if they are receiving a needs-based benefit such as Supplemental Security Income (SSI) through the Social Security Administration (SSA).
   
   
2. Employment
   Employment provides wages to save money. There are a variety of employment services that an individual with a disability can access to obtain, maintain or enhance their employment status.
   
   
3. Free Tax Preparation 
   Tax time is an ideal time to encourage individuals to save money when they receive their tax return. Oftentimes, individuals with disabilities may not file a tax return because of low wages or for fear that, if they do file and get a tax refund, that they will lose their public benefits. 
   
   
4. Financial Education
   Financial education is an important strategy for individuals to build their financial well-being. Oftentimes, financial education may not be delivered to individuals with disabilities, though it provides the knowledge and skills they need to build their financial well-being. 
   
5. Asset Development
   ABLE accounts are a savings option for individuals with disabilities who may qualify for these accounts. These accounts allow an individual to save up to $15,000 per year without these funds impacting an individual’s needs-based benefit, such as Supplemental Security Income.

Read the full article from Michael R. Roush, Director, Real Economic Impact Network, National Disability Institute

More and more people who take the America Saves pledge are choosing investment savings as their goal. Making investments can build wealth over time more reliably than using a savings account, but it also involves risk. So, it’s important to educate yourself. Here are some resources to help.

Before you start comparing investment options, learning about some basics like asset allocation, diversification, and risk tolerance will help you decide which to choose.

Investment Options

According to the SEC, stocks, bonds, and mutual funds are the most common types of investments. Other options include annuities, exchange-traded funds, money market funds, and U.S. Treasury securities. The SEC provides details about various investments. FINRA, an independent organization that also regulates the securities industry, provides a helpful overview of different types of investments. 

Making Your Investment

After learning some basics, it’s time to decide how you want to invest your money. The SEC can help you decide whether to invest on your own, or hire a broker or adviser. If you decide to use a professional, you should make sure that your broker or adviser is a fiduciary, which means they owe you legal duties to serve your best interest. Not all financial professionals are legally required to be a fiduciary. If the financial professional you work with is not already legally required to be a fiduciary, make sure they sign this fiduciary oath, agreeing to act as a fiduciary under the law. You can find fiduciary financial professionals at CFP Board, Financial Planning Association, and National Association of Personal Financial Advisors (NAPFA). FINRA and NAPFA offer step-by-step guides for evaluating financial professionals.

Protecting Yourself from Investment Pitfalls

Fees

To get the most out of the money you invest, it’s important to understand the fees. The more you pay in fees, the lower the return on your investment.

Fraud

Unfortunately, investment fraud like Ponzi schemes and advance fee scams are a fact of life. You may stumble across some fraudulent investment offers as you research your options. Make sure you know how to avoid losing your hard-earned money to fraud by following the advice of the BBB, FINRA, and the SEC.

It can be hard to put aside money for savings. But there is an easy way to save money without ever missing it. Make your savings automatic. You can start small and save $20 a week or month or you can try and save more.

How to save automatically

• Many employers allow you to divide your paycheck into different accounts. Take advantage by putting part of your pay into a savings account.
• If you get paid in cash, take a small amount to the bank to deposit into a savings account. Many banks make this easy by allowing you to deposit cash directly at an ATM. Tip: do this the day you get paid. That way you will be less tempted to spend the money.

Why automatic savings works

• Saving automatically makes it easier to save because your money is saved with each paycheck – you don’t have to think about how much to save or take any additional steps.
• It’s tempting to spend money when it’s readily available. If you don’t see the money, you are less likely to miss it.

I don’t have enough money to save

Everyone has the ability to save. At America Saves, we say “Start Small, Think Big.” You can start with only $10 a week or month. You have to start somewhere. When you get extra income, you can add that money to your account as well:

• Put a portion of your tax return money into savings.
• Put birthday or holiday money into savings.
• Hold a garage sale and put that money into savings

Over time, your deposits will add up. Even small amounts of savings can help you in the future.

Do you save automatically? Let us know on our Facebook page.