Key insights:
- Opening a savings account and setting a budget are good first steps to start saving money
- A savings account is a useful tool for saving money as it offers frequent, convenient access to your funds
- You may open a Citi® Savings Account online to start working toward your savings goals
Saving money is a key part of building financial security. It can help you achieve goals, weather financial stresses and provide peace of mind.
Opening a savings account can be a good first step to start saving money. These accounts don’t typically require large minimum deposits, making them a viable option for many people. Unlike other interest-bearing accounts, such as certificates of deposit (CDs), savings accounts usually offer convenient and frequent access to your funds.
Let’s explore how to set savings goals, how to start saving money and tips to pick a savings account that may work for you.
How much savings should I have?
The amount of money you should have in your savings account depends on your financial goals. Here are some examples of common savings goals:
- Building an emergency fund: Typically, experts suggest having anywhere from 3 to 6 months’ worth of necessary expenses saved, so your goal will depend on factors like your housing and utility costs, as well as your desired timeline (for example, a 3-month emergency fund).
- Going on a trip: This type of goal can vary widely depending on the type of trip you want to go on. For example, a road trip might be limited to gas, food and accommodation costs, while a cruise might have a substantially higher price tag, including expenses such as unique excursions along the way.
- Making a down payment on a house: This goal will depend on your desired home price tag as well as the percentage of that cost that you want to have saved. For instance, if you want to avoid private mortgage insurance (PMI), you typically need to put down at least 20% of the home’s price.
Setting up an emergency fund can be a great first savings goal. From there, you might decide to set bigger goals like saving for a down payment on a car or a house.
How to start saving money
There are 3 key steps to start saving money: Identifying your goals, tracking your spending and creating a budget that lets you achieve those goals.
1. Identify your goals
To figure out how much money to save, think about your financial goals. For example:
- If you want to buy a new car, how much will the down payment be? Do you want to pay your new insurance policy in full for the year?
- If you want to take a vacation, how much do you need for travel and accommodations? Do you want to have room in your travel budget for incidentals, like souvenirs or dinner at a seaside restaurant?
- If you’re buying a home, what home price is at the top of your budget? What down payment percentage do you want to aim for?
Whatever number you come up with, it’s usually a good idea to make your savings goal slightly larger than what you calculate. That way, you can cover unexpected costs.
2. Track your spending
Your spending habits are key to understanding how much you can afford to save. If you’re new to budgeting or you haven’t recently reviewed your spending habits, you may want to look at your expenses over the past month (or longer, for greater accuracy). Review your bank and credit card statements to see how much you’ve actually spent. This can help you understand where your money is going and how much you spend each month in total.
3. Create a budget
A budget is a spending plan. Once you know how much you’re generally spending, you can compare that to your earnings to understand how much you can afford to put into savings.
Next, figure out how long it will take to reach your savings goal by dividing that goal by your monthly savings amount.
If you’re happy with that timeline, you can put your plan into action by setting up automatic transfers to your savings account or manually transferring funds each month. If you’d like to reach your goal more quickly, you may want to look at your expenses and see if there’s room to cut out certain items so you can afford to put more money into savings.
Remember: The point of a budget is to help you become aware of your spending habits and live the life you want. You can always adjust your budget as your needs and goals change over time.
How to choose a savings account
Many financial institutions offer savings accounts. To find the right one for you, consider the following factors:
- Opening deposit requirement: You may need to deposit a minimum amount of money to open certain savings accounts.
- Annual percentage yield (APY): The higher the rate, the more your money can grow over time. Just keep in mind that APYs are typically variable, meaning they can change over time.
- Fees: Some financial institutions may charge fees for certain accounts, which may eat into your earnings. Understanding how fees work, and if there are opportunities to avoid them, can help you assess your options.
- Withdrawal restrictions: Some banks may limit how often you can withdraw funds from your savings account.
It can take a bit of research to find the right savings account for you. But if you spend the time to consider your options, a savings account can become a key tool to help you achieve your financial goals.
A Citi® Savings Account offers a competitive APY, several paths to avoid a monthly service fee and no minimum monthly balance.
Disclosure: This article is for general educational purposes. It is not intended to provide financial advice. It also is not intended to completely describe any Citi product or service. You should refer to the terms and conditions financial institutions provide for various products.
