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Friday, April 23, 2021

3 ways to cut costs and grow your savings during the pandemic

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Automation is key to staying on track

high yield savings account dropping

Don’t leave it up to willpower.

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Sethi said that too many people distract themselves trying to determine which high-yield savings account is the best one, when, realistically, small differences in interest rates do not make a meaningful difference. 

“The yields on these savings accounts are not that high anymore — that’s fine, that’s normal. You do not really make money from having your money in a savings account,” Sethi explained. “A common mistake that people make with their emergency fund is spending a month researching the right account. Don’t worry if it’s a 1.3% or 1.4% interest rate — if you run the math, you’re talking about $2 to $3 a month, maybe. Just find a simple high yield savings account, pick it, and go with it.”

What does make a huge difference, however, is setting up automatic withdrawals of money from your paycheck into the savings account. 

“Automation is one of the best decisions you can make in your entire life, ever, bar none,” Sethi said. He explained that if you don’t automate your savings, you’re depending on “the better angels” of your own nature to remember to manually contribute every month. And despite all good intentions, most people will forget to do this. 

“The data shows us that when you automate contributions to a retirement account or savings account, that money grows because we forget about it and let the system take over. A big finding in personal finance that more people should listen to: Systems over willpower. That is profoundly important,” said Sethi.

Although he doesn’t use too many tools, if you are looking for an app to get a better handle on your day-to-day expenses, Sethi suggests You Need A Budget (YNAB). Another popular option is Mint, which allows you to link your bank accounts and keep track of bills and other spending.

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