Feel like your spending has gotten a little out of control? You’re not alone. A recent study by the Center for Financial Services Innovation says some 47 percent of Americans continually find themselves living paycheck to paycheck, while 36 percent report that they can’t pay all their bills on time. A whopping 30 percent even report having an unmanageable amount of debt.
In other words, more than half of the people in America struggle with some aspect of financial health. For people who live below the poverty line, the problem seldom lies in discretionary spending, but others just lack the discipline to set some income aside instead of adding it to their spending coffers.
“Most people are broke because they don’t learn about personal finance,” financial guru A.J. Smith recently told Time.com. “The psychology should shift from ‘How can I spend money to make me happy now?’ to ‘How can I use this money to buy me financial freedom in the future?' If you are able to make that shift, you should be able to overcome most reasonable hardships."
Here are some tools that will allow you to divert cash away from your everyday wallet and toward more significant savings.
- Money market accounts. These function somewhat like traditional savings accounts, but with automatic FDIC insurance and (usually) higher rates of return in the form of dividends. With a money market account, a bank takes your money and deposits it into short and very safe investments, making your return based on their performance. Such accounts don’t tie up your money as long as certificates of deposit (CDs), but do limit withdrawals to six per statement so you’re encouraged to leave your money in longer. Often, money market accounts require no monthly maintenance fees or minimum balances.
- Certificates of deposit. CDs essentially allow you to pre-determine how long your bank will get to use your money, which may motivate you to sock it away for a rainy day. You can always access it before that date, of course, but you’ll be penalized with an early withdrawal payment equal to as much as several months’ interest. Like money market accounts, CDs almost always come with better interest than savings accounts and seldom charge monthly fees. You can choose to invest all your cash into one CD or divide it into CDs of varying durations - i.e., ladder it - so your accumulated money is available at different intervals.
- Prepaid debit cards. Instead of leaving the balance of your paycheck open for spending each pay period, consider placing the amount you wish to spend on a prepaid debit card that will draw only that set amount from your account. Prepaid debit cards are typically accepted wherever their payment networks are active, but the process of choosing their balances can make you think twice about extraneous purchases and protect you from costly overdraft charges. Be sure to read about fees and other vital information on the back of the prepaid card packaging before purchase.
- Checking and savings accounts at separate banks. Mobile banking has made it tantalizingly easy to move money instantaneously from savings to checking when you wish to spend more — unless, of course, the two accounts are at different banks. Use your employer’s direct deposit to deposit money into the two separate accounts before you can even consider the idea of transferring it all to your wallet.
- Separate accounts for each goal. You may be more motivated to save if you attach a specific purpose to a savings account. Deposit a portion of your paycheck toward your ‘Trip to Europe’ fund, your ‘New House fund’ or even your ‘All-Original, Hemi-Orange, Mint Condition 1969 Dodge Charger’ fund. We don’t judge.
In short, there’s nothing wrong with putting a few personal roadblocks into place if that will motivate you to sock more money away for critical future purchases. The more you can bucket your expenses between the things you want and the things you need – and use modern banking tools to make it more difficult for you to burn through your disposable income – the better your spending habits will become.