With tax season in full swing, it’s likely that finances are on your mind now more than ever. Sound familiar? You may be looking for ways to better prioritize your savings and make the most of your money to benefit you and your family. And that would certainly be smart. With continuing inflation and so many unknowns on the horizon, it’s important to set aside money for emergency expenses and major life events alike.
We spoke with financial experts about tips to help you prioritize your savings from using it to pay off debts to investing it in your child’s future education to having an emergency fund ready should you need to tap into it, including the hows and whys of it all.
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Paying Off Debt
One of the best ways to use your savings is to try to pay off any debts you may have, whether that’s loans, credit card bills, or miscellaneous payments you’ve been putting off.
Tackle Those With High Interest Rates
According to Jennifer Seitz, CFEI® and Director of Education at Greenlight, start by tackling high-interest debt first, especially credit card balances, since interest can compound quickly and the debt would snowball.
“Consider using either the avalanche method, which means paying off the highest interest debt first, or the snowball method, where you start with the smallest balance for quick wins, to stay motivated,” she adds. “Where possible, consider automating extra payments each month to chip away at balances consistently without having to worry about it.”
Consolidate Your Debt
You may want to consider consolidating your lines of debt into one balance and one monthly payment. “This presents an opportunity to take advantage of lower interest rates, in turn lowering your monthly payments,” says Adam Davis, vice president and head of financial health and customer liquidity at Capital One. “It’s important to take your time researching the right place to do this and if this method works for your finances, as it might not be your best option.”
Stick to a Clear Budget
If you have debt, then it’s important to track your spending. One of the easiest ways to do this is to set a budget and stick to it. “Sticking to a clear budget helps keep your spending in check,” Seitz says. You can do this the old-fashioned way with a pen and paper or download an app to help you keep track of your spending during the month.
Saving for Retirement
Retirement is the dream for many people and you’ll want to start saving for it early on if you can help it. Here are some tips to get you started:
Start Early
It’s never too early to start saving for retirement. Even if you’re in your late 20s or early 30s, you can benefit from saving for retirement although it may feel like an eternity away.
David Maurice Sharp, a financial literacy educator, says that the earlier you can begin to save for retirement, the longer compounding will work to benefit you.
Try the 50/30/20 Rule
The 50/30/20 rule (50% for needs, 30% for wants, 20% for savings) is an easy-to-follow structure to help kickstart your savings. “It provides flexibility while ensuring that saving is an assumed priority rather than an afterthought,” says Seitz. “If 20% is ambitious, start with an amount that’s manageable to your unique situation and increase that gradually as your income grows or you reduce expenses.”
Open a High-Yield Savings Account
If you don’t already have a high-yield savings account, then you’re letting your money go to waste when it could be making you money. Instead of keeping it at your bank accumulating little to no interest, look for institutions that have higher interest rates. For example, Marcus by Goldman Sachs tends to have fairly high interest rates compared to its competitors.
That said, interest rates can change so it’s not a guarantee, but it’s better than just having your money sit there not accumulating anything.
Saving for a Kid's College Expenses
While it’s not a guarantee that your kids will go to college, it’s definitely a possibility and you may want to help prepare them for this costly investment early on.
Enroll in a 529 College Savings Plan
Saving for college early can make a significant difference thanks to the power of compounding. “529 college savings plans offer tax advantages, allowing money to grow tax-free when used for qualified education expenses,” says Seitz. “The new rules allow unused funds to be rolled into a Roth IRA so that you don’t have to worry about losing savings if your kids’ higher education plans change.”
Additionally, Seitz recommends looking into your employer benefits to see if they offer access to 529 educational savings plans or a contribution match.
Enroll in Automatic Saving Programs
Automatic savings programs are also a great tool to make saving easier, especially if you’re looking to save money for a child’s college education or maybe even your own if you’re looking to go back to school. “Putting aside a fixed dollar amount or percentage from your paycheck every month, even if it’s small, can really add up over time,” says Davis.
More from CafeMom: 5 Ways to Start College Funds for the Kids While Paying Off Debts
Other Tips to Prioritize Savings
Be Aware of Lifestyle Creep
If you get a new job with a cushy new salary, then your gut instinct may be to spend more money. “Lifestyle creep refers to a gradual increase in spending and standard of living with rising income,” says Seitz. “With new discretionary income, lifestyle upgrades such as more expensive homes, cars, vacations, and more can be tempting when the money could be better put toward savings or investments first.”
Have an Emergency Fund
Sudden job loss or getting laid off can leave you in a tricky situation, so it’s always good to have some extra money lying around that can be used in the case of an emergency.
“As a rule of thumb, a financial safety net should cover three to six months of your essential expenses — things like housing, food, and regular bills.”
