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3 steps to supercharging your savings

CATHERINE ALFORD • Nov. 23, 2020 • 7 min read

What we'll cover

  • How to get ahead

  • How to establish emergency savings 

  • How sinking funds can help

Over the past two weeks, my husband and I have had several unexpected expenses. First, our beloved family dog got very sick and ended up in the veterinary hospital for three days. Right when we got her back, my car wouldn’t start and needed to be towed to the repair shop. As soon as I got my car back, my husband’s car needed new brakes. Needless to say, it’s been an interesting — and expensive — past couple of days.

A few years ago, having three unexpected expenses totaling to $3,000 would have sent me into a sheer panic. I wouldn’t have been able to take care of my pet or my cars the way I should have. I would have been stressed to the max, hustling to find any way possible to pay for the damage. This time, though, I was able to focus on solving each problem and not on how much the problems cost. What changed? For me, it was the fact that I had an established savings fund, one that I built using a three-step strategy I’m going to share today.

I realize finding extra cash to save might be difficult for many families right now. So, I want to assure you there’s no timeline to these steps, and there’s no prize for who gets there the fastest. Some people will be able to complete these three steps in a matter of weeks, depending on their current employment, salary, and other financial obligations. For others, it could take a year or more to fully complete these steps. What’s most important is your consistent commitment to building the savings, not how quickly you do it.

Step 1: Get one month ahead.

My favorite way to manage money is to get one month ahead. That means that on the first of each month, I have all the money in my bank account to pay for my expenses that month. This eliminates the paycheck to paycheck cycle and allows for some peace of mind when automating bills. However, in order to use last month’s income to pay for this month’s expenses, you have to save a considerable amount of money .

The first step to doing this is to know exactly how much money you spend each month. Add up your bills, your loan payments, and even how much you typically spend on expenses like clothing, groceries, and your children’s extracurricular activities. Once you know how much money you spend in a month, you’ll have a number to work toward when it comes to getting one month ahead.

Usually, I advise people to take it slow, inching toward this goal by getting one week ahead at a time. You can typically achieve this goal by paying closer attention to your spending, cutting back, and finding opportunities to earn more by selling things or doing a side hustle.

Although it takes some time to set up a budgeting and cash flow system like this, I can assure you it’s absolutely worth the peace of mind. I’ve tried just about every budgeting system out there over the last decade, and this one produces the best result with the least amount of stress and maintenance on my part.

My favorite way to manage money is to get one month ahead. 

Step 2: Establish a solid emergency savings.

Your emergency savings is Step 2 of this strategy for a specific reason, which is because Step 1 will help you learn how much you actually need to save . When you get used to managing your cash flow and becoming more aware of your spending, you’ll know exactly how much money you spend every month. Once you know that, you can set a goal for your emergency savings account.

If you have high interest debt, like credit card debt, save one month of expenses as your emergency savings. Then, go to town paying down your high interest debt as quickly as possible. Once you do that, you can then go back and pad your emergency savings to 6+ months of expenses.

If you have low interest debt, like student loan debt under 7% or mortgage debt, go ahead and place your focus on getting your emergency fund to 6+ months of expenses. Once you establish an emergency fund, you can then switch to paying down your low interest debt.

In the past, I’ve recommended a 3–6 month emergency fund for everyone. However, if 2020 has taught me anything, it’s that 3-6 months just doesn’t feel like enough. Now, I’m much more in favor of a 6–12-month emergency fund. Additionally, I’m even more insistent that people do whatever they can to crush high interest debt. It can grow so rapidly and cause more pain and stress, two things you don’t need when you’re in the middle of a difficult time.

If you want to find out how long it might take you to reach some of these financial goals, Ally has a great savings goal calculator you can use.

Step 3: Set up sinking funds.

The last part of my three-step savings strategy is to set up sinking funds. Sinking funds are mini savings accounts that help you save for specific goals, like hiring your favorite newborn photographer or taking your mom on a trip for her 60th birthday.

Sinking funds can save you in those moments when your car needs a new battery or you want to get through the holidays without debt. I like to keep my sinking funds in my Ally Bank Online Savings Account because they offer something called buckets . Essentially, you can open one savings account and then categorize your savings into different buckets. That way, instead of your money sitting in savings in one lump sum, you can organize it and give it purpose, which can help you to visualize and ultimately reach your sinking fund goals.

Supercharging your savings

Anytime you decide you want to go through these three steps faster, you can also use the tried and true formula of spending less and earning more. I’m also a huge fan of automation because it takes all the emotion out of it. You can set up automatic transfers to your savings account and sinking funds, so they grow without you thinking twice about it.

And, whenever working through these steps gets challenging, think of the savings like a gift to your future self. It’s like peace of mind wrapped up in a big, nice savings bow. For me, there are three big reasons why I save: personal freedom, leaving a legacy, and extreme generosity.

I know having savings gives me freedom to make choices, like I did when I paid for all the care my dog needed, despite its high cost. I also want to leave a legacy for my children, not only financially but in the money lessons I pass down to them. I know they’re watching me and how I handle money, and I want them to learn how to save from me. Lastly, I love the idea of extreme generosity. I know establishing positive money habits now and continuing them throughout my lifetime can set me up to be a person who can help others in a big way down the line.

I encourage you to think of three main reasons why you want to save. Write them down and put them somewhere you see daily. Let these three reasons motivate you when it gets hard to stick to the plan. Additionally, be kind to yourself if unexpected expenses pop up that derail your savings goals for a period of time . Life has a way of throwing in some surprises. But, as long as you keep trying, eventually you will be able to have that peace of mind that comes with having a nice, supercharged savings in place when you need it.

To start supercharging your savings, visit today. And, for more tips on how to manage your money, visit my blog for more insights at .

Catherine Alford is a nationally recognized financial educator who partners with top brands to encourage, educate, and inspire people to take on a more active financial role in their families. She is also the founder of , an award-winning personal finance blog that she created in 2010. Follow her on Instagram @CatherineCAlford.

The views, information, or opinions expressed are solely those of the individuals involved and do not represent those of Ally Bank.

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