For once, the primary answer isn’t about the economy.
A new study by Bankrate.com shows two out of three consumers in the U.S. are actively trying to limit their monthly expenses. Even more surprising, most of those who are cutting costs aren’t doing it because of a bad economy. Instead, they’re tightening their belts to address problems with stagnant income and a need to save more.
For younger generations – both Millennials (18-29) and older generations still in their working years (30-49) – the resounding reason for cutting back comes from a need to save more money for the future. This includes savings for goals, like home and car buying, as well as long-term savings like retirement. For seniors, the biggest reason for cutting back comes from a lack of pay increases as they head towards retirement.
Bankrate’s Financial Security Index measures five key factors in financial stability:
- Job security
- Comfort level with debt
- Net worth
- Overall financial situation
Of those five, only savings has deteriorated in the past twelve months. The other four have improved for most consumers.
“It’s great to hear that Americans are doing better, but it’s even better to see so many people focusing on savings,” says Gary Herman, President of Consolidated Credit. “Personal savings rates are still much lower than they need to be for consumers in the U.S., so this is certainly a step in the right direction.”
Establishing an effective saving strategy
Focusing on savings really means planning it into your budget. You can’t leave savings to chance or just expect to save whatever money you have leftover at the end of the month if you want to save consistently and take positive steps.
“In general, we recommend to clients that they should save about five to ten percent of their income every month,” Herman continues, “but even if you can’t save that much, any savings is better than nothing.”
The easiest way to ensure an effective saving strategy is to plan for it in your budget. Here is how to implement this kind of strategy:
- Check your total monthly income.
- Determine your savings range by multiplying the total by five and ten percent.
- Review your budget to see how much free cash flow you have – this is the money you have left over once all of your bills and expenses are paid.
- Now allocate some of that cash flow to monthly savings – your goal should be to save up to ten percent of your income.
- Set the amount you’ve determined as a line item in your budget. This creates an obligation to “pay yourself” just like you see with other bills and expenses.
- If possible, set up automatic transfers from your checking to a savings account to ensure the money gets saved every month even if you forget.
- If you can’t start out saving the full ten percent, take steps to reduce your credit card debt. Lower payments means you have more money available for savings.