How can I increase my cash savings? This is a universal question that is important to many people. Households are looking for more and more ways to increase savings especially when so little interest can be earned on amounts put in bank savings accounts. Here are seven ways to increase what you saved from your hard earned money. First, let’s start with a little background information.
America’s Savings Rate
According to Statista Research’s December 3rd release in October 2020, the personal savings rate in the United States amounted to 13.6%, down from a high of 33.7% in April. Personal saving rate is calculated as the ratio of personal saving to disposable personal income. Remember at the height of the pandemic in early 2020 consumer spending ground to almost a complete halt but it has since recovered. Still as we ended 2020, consumers were saving cash at very high historical levels. In times of uncertainty savings usually increase as households look to build cash cushions. My belief is that due to the historically low level of interest rates and the uncertainty in our economy - households should increase their savings levels.
Seven Actions to Increase Savings
Here are seven actions to generate savings:
1. Reduce Living Expenses. According to the Bureau of Labor Statistics the typical household spent a little over $63,000 per year or $5,250 per month in 2019. There are numerous ways to reduce and manage household living expenses. I believe that you can save at least 1% per month by focusing on what you are spending and looking for ways to control it. In my new book The Guide to Savings, which will be published in 2021, I provide you with 600 ideas on where to look for savings.
2. Save for Specific Needs. If you are goal-oriented, it can help to have a specific purpose for the money that you are saving. This is different from setting a goal to save a set amount, such as $100.00 each month. You may have savings for:
A vacation, once you can travel
Travel to see family
A down payment on a house
A new car
Education expenses for upskilling
Knowing that you are saving for a specific need can help you measure progress and stay motivated. It can also make it easier to give up something you want today, such as new clothing or eating out, if you know what you will be able to have in the future instead.
3. Find a Money Coach. If you are having trouble identifying where and how to save, or even what types of saving you need, I suggest you reach out to a financial planner. These professional advisors can:
Identify strengths and weaknesses in how you manage money
Help you develop a cash plan
Tell you the savings goal you should target
Assist with long-term planning for retirement or college education needs for children
When choosing a financial planner, look for someone you feel comfortable asking questions and whose answers you can understand. If you are just starting to take control of your finances, look for a fee only financial planner, rather than one who earns a commission from your investing. Based on my experience, the cost of this service will pay significant dividends.
4. Take Advantage of Available Income Tax Credits. There are a number of tax credits available that reduce your federal income tax bill and put cash in your pocket. Each of these credits has different qualifying income levels and restrictions that you can research. Many of these restrictions change annually. I am providing these as key credits you should look into.
Saver’s credit. Also known as the retirement savings contributions credit, this tax break is for folks who save money in certain types of retirement accounts — including 401(k) plans and individual retirement accounts (IRAs) — and who are otherwise eligible for the credit.
Earned income credit. This tax credit is for eligible workers. More specifically, it’s for folks with earned income, such as wages, as opposed to income from investments. Unlike the saver’s credit, the earned income tax credit (EITC) is refundable. That basically means it not only reduces your tax bill, but it also might result in you receiving a tax refund or a receiving a bigger refund than otherwise.
Adoption credit. This tax break is for qualified expenses associated with the legal adoption of a child, such as adoption fees, court costs and legal fees.
Lifetime learning credit. This education credit is for qualified tuition and related expenses for eligible taxpayers who are enrolled at an eligible education institution.
Other tax credits. The above credits are among the few federal income tax credits that have limits that tend to change each year, but they are not the only tax credits available. Other federal tax credits that are currently available include: - Child tax credit - Credit for other dependents - American opportunity tax credit (an education credit) - Credit for the elderly or disabled
It is also worth looking into credits offered by your state of residence. Sometimes there are valuable credits available to you. It’s worth taking a moment to see if you might qualify for these or any other tax credits, as they would directly lower your tax bill.
5. Save your new salary. If you are lucky enough to get a raise or promotion, simply save your new salary amount and bonus you are eligible for. Don’t increase your lifestyle by adopting a new higher level of spending. Instead put the increase into savings.
6. Make maximum use of your cashback rewards credit cards. As I have written, I make maximum use of my rewards credit card. By using your cashback rewards credit card on everything and paying off the monthly statement in full, you can accumulated cash to add to your savings. Remember to only use your rewards credit card in this way if you’re responsible enough to pay your bills on time and in full. Once any interest starts to accrue on a balance, you’ve likely voided the benefit.
7. Increase Your 401(k) Contribution. If you have access to such a plan at work one of the easiest ways to boost your savings is to simply increase your 401k contribution. Remember, though, that your 401(k) contribution is pre-tax. So, when you boost your savings, you’ll also pay less in taxes. As such, the increase won’t have such a major impact on your paycheck. Another way to boost your savings is to simply put any raises or bonuses you receive at work into your 401(k), up to the mandated limits.
Summary
Developing a savings mindset and putting in place actions to increase your savings are two of the best money habits you can develop. There are numerous ways to increase your savings. All it takes is a focus on getting it done.
If you're looking for ideas on where to find cash savings, please order my new book, The FinancialVerse Guide to Savings – 600 Cash Savings Ideas.
The book is priced at $16.99 for print and only $3.99 for the eBook. Cash Savings provides practical suggestions for where you should look for savings as part of your day-to-day life. For most households, I believe they will find at least $600 in annual savings.