“The research results are in,” says Dr. Dena Wise, Professor and Extension Specialist with UT Extension, “and it’s clear that the best way to save is to make savings automatic.” That’s why America Saves, and other organizations that promote saving, are focusing on making savings automatic during America Saves Week 2016.
“Many people have automatic retirement savings through a 401(k) or other plan in which deductions are taken from their paycheck each month,” says Wise. “But you don’t need to dip into retirement savings for emergency needs or pre-retirement savings goals.”
For that reason, Wise recommends asking your financial institution how you can set up a pre-retirement automatic savings account that withdraws a portion of your paycheck deposits each month and moves it to savings. That savings should cover three things, Wise says: (1) an emergency fund; (2) saving for major purchases you need to make; and (3) savings for long-term financial goals such as the down payment on a home or a college education for kids.
“Though some experts recommend saving a certain percentage of your income, there’s really no magic formula for how much you need to save. Figuring it out isn’t rocket science, but you really do need to put pencil to paper to find your own savings formula.” Wise recommends the following steps:
- Determine how much you want in an emergency fund. If you are struggling to get on your feet financially, you may want to make that $500 to $1,000. If you are on firmer footing, experts recommend three to six months living expenses. Divide the amount you want in your emergency fund by the number of months you’re giving yourself to reach this goal. After you have your emergency fund fully funded, you can divert this money to savings for major purchases (#2) or long term financial goals (#3).
- List major purchases you will need to make over the next two or three years (autos, tires, repairs, appliances, electronics), and what you think they will cost. Again, if you are struggling financially, consider purchasing used items rather than new. Regardless, planning to pay cash for major purchases will help you avoid expensive debt and gain financial traction in the long run.
- Outline your long-term financial goals (house down payment, education funds, travel funds, additional retirement) and estimate how much you will need, dividing each estimate by the number of months before the funds will be needed.
- Total up these monthly amounts to determine your customized savings goal, and have that amount automatically put into savings each month.
- Relax, knowing that you are on firm financial ground without having to do additional calculations or worry from month to month.
University of Tennessee Extension educators are encouraging individuals to focus on making their savings automatic during Tennessee Saves Week, February 22-27, 2016. Tennessee Saves Week will be a concurrent celebration with cities and state across the U.S. promoting savings during America Saves.
Locally a Piggy Bank Pageant is being offered to encourage youth to start saving. This is being sponsored through Tennessee State Bank, King Family Public Library, Keep Sevier Beautiful and UT extension. A winning check will be awarded among the various age categories, so youth will actually have money to actually start saving! You may contact TN State Bank, the King Family Public Library branches, or UT Extension for more details.
Celebrate Tennessee Saves Week! What are you saving for? Think up a new idea to save money. Put a Selfie picture on your Facebook site with a sign stating “I am Saving for ______.” Make a financial goal for yourself and break it down into small practical steps. You may also visit the America Saves.org website, where you can sign up to receive text messages reminding you to save!
For more resources on saving money you may contact Linda Hyder with UT Extension – Sevier County at [email protected] or 865-453-3695. TN Saves Week is a great time to look at your finances and refresh yourself and family on saving money.