Sometimes no matter how much planning you do, your savings plan goes awry. You can, however, rebuild your savings after a financial downturn when you start now. The key to rebuilding a drained savings account or a depleted retirement account is to start again, as soon as you can, and not wait for some "extra" money to come rolling in from a mysterious source. You have the ability to rebuild your safety net and give yourself peace of mind.
Revise your budget
Although you may have just survived a financial downturn due to unemployment or an unexpected large expense, now isn't the time to spend freely.
- Revise your budget to account for a changed income or to include a payment plan for a large medical or home repair expense.
- Cut back on frivolous spending. Reconsider your 300 cable channels, the latest gadget, going out to dinner five times a week or a new handbag every month. Distinguish between need and want and you may discover some extra money in your budget.
Your parents were right. Sometimes you have to make do with what you already have, including your current income. You can try to rebuild your savings when you pay yourself first. Here's how:
- Invest in your company's tax-deferred 401(k) plan. This will help you build a retirement fund over time. It will also lower your taxable income which may result in a lower tax rate for you. If your company matches your contribution, this will boost your retirement savings even further.
- Consider an IRA account. If you don't have access to a company-sponsored 401(k) plan or want an additional retirement vehicle, consider a Roth or traditional individual retirement account (IRA). Just finding an extra $30 a week in your budget could make this a reality.
- Set up automatic deposits to a savings account. You may already have your mortgage or other bills set up to be paid automatically through your checking account, but what about your savings account? Pay your savings account monthly just like any other bill you receive.
Spend extra money wisely
Extra money can sometimes find its way to you in the form of a pay raise, an income tax refund, a small inheritance, a work bonus or income from a side job. Consider using this extra money to pay yourself, not treat yourself.
- Increase your 401(k) contribution if you receive a pay raise.
- Stash refund or bonuses into a savings account or your IRA.
Track your credit score
You've worked hard to pay down debt and rebuild your savings. Don't let the unknown sneak up on you. Keep an eye on your credit score as part of your routine to manage your financial well-being.This information is for educational purposes only and does not constitute legal or financial advice. You should always seek the advice of a legal or financial professional before making legal or financial decisions.
Posted in: TransUnion