August 2, 2012
By Preston Cochrane, President and CEO, AAA Fair Credit Foundation & Utah Saves
When your baby is just learning to smile and grasp your finger, college education may seem too far away to think about. But to fund your child's education, you'll need to amass a large amount of money. If you plan ahead, you'll provide your child with a much wider array of education options.
In the year 2000, tuition for a bachelor's degree program, including housing, at a public university averaged between $20,000 and $50,000. A bachelor's program at a prestigious private university may cost more than $150,000. By the time your child is ready for college, it will be much more than that.
Start a college fund as soon as you can for your child. A small amount invested 18 years in advance will grow to much more than a larger amount saved a year before it's time for college.
There are many places to find money to save. Start with the loose change you accumulate. Americans typically save more than $100 in loose change each year. Use this change to open and grow a savings account. If you receive a tax refund or Earned Income Tax Credit, use a portion of this money to begin or increase savings. Since the Tax Credits average nearly $2,000, you may be able to open a savings account and still have plenty of money to pay off debts or cover other expenses.
Try to deposit money saved by cutting back on small, unnecessary expenditures. Need help? Here are more than 50 ideas for reducing spending. These ideas range from packing a lunch, to switching from daily lattes to daily coffees, to not bouncing checks.
Saving money for an emergency fund may be easier if you involve your whole family in meeting this challenge. After you’ve explained the importance of emergency savings to your spouse or children, they may even help build the account. And, they will be more likely to understand why it’s more important for you to increase these savings than to pay for expensive gifts at birthdays or Christmas.
Another way to accumulate the $500 to $1,000 of emergency savings is to ask your bank or credit union to automatically transfer funds from checking to savings monthly. Automatic savings is the easiest savings. What you don’t ever see, you may never miss.
Saving for emergencies is, and should be, a top priority for every American. Maintaining an emergency savings account may be the most important difference between those who manage to stay afloat and those who sink in debt. 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;
- buying your child a new pair of needed shoes;
- replacing a broken window in your house;
- paying for a visit to the doctor when your child has the flu;
- covering the dental expense of filling a painful cavity;
- paying for a parking ticket; or
- flying to visit a sick parent.
The emergency fund not only provides you with the money to pay for these expenses, it also gives you “peace of mind” knowing that you can afford these types of financial emergencies. Not having an emergency savings fund is one of the reasons many individuals borrow too much money at high interest rates. For example, by saving for emergencies, the twelve million American adults that use payday loans annually would probably not have to take out eight loans of $375 each per year and spend $520 on interest (Pew July, 2012 Study).
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. That’s why it is usually a mistake to keep your emergency fund in a checking account.
You may well need at least $100 to open the savings account and a $200 minimum balance to avoid monthly fees. In most areas, however, there are several financial institutions with lower minimums. Also, banks and credit unions may waive the minimums if you have other accounts at that institution or if you agree to regular, automatic transfers from checking to saving. Your local America Saves campaign can help you find a participating financial institution that offers low- or no-minimum balance savings accounts.
The Best Way to Save for Emergencies
The easiest and most effective way to save is automatically. This is how millions of Americans save at their bank or credit union. 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.
- Save for Emergencies
- Why you should start saving for emergencies
- How to Find Money to Save for Emergencies
Savings tools, links, and more.
- Interested in receiving helpful tips and reminders about your savings goal? America Saves launched a new free text message service, as part of Financial Literacy Month, to keep you motivated to save.
- This checklist is made up of characteristics of successful savers, which include debt management. It can serve as a useful starting point for evaluating one's savings preparedness.
Like your health, you should assess your savings annually to make sure you are saving for all the right things. Complete the assessment to see if you are saving adequately and create a savings plan.
- Videos on thinking and acting like a saver, saving for a large purchase, and information about credit scores.
- An archive of our quarterly newsletters. Features a true saver story, tips from savers, and news you can use.
- More information to help you save successfully.