It’s safe to say that we could all use a bit more money in our lives, especially after the last year of rampant inflation and the current “will we or won’t we” atmosphere surrounding the possibility of a recession in 2023. With that in mind, you might be looking for ways to optimize the returns on any investments you may have.
Unfortunately, there’s very little you can do in a direct way when it comes to your brokerage account to increase your returns. Making sure you have a diversified portfolio and choosing quality investments that will perform well over the long term will help. You’ll be better able to weather the market’s ups and downs, and have plenty of time to benefit from compound interest. But if you’re hoping to increase your cash on hand now, there’s a better way.
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Real estate investor and financial guru Graham Stephan recently noted on Twitter, “It’s much easier to increase your savings rate by 5% than to find an additional 5% return on your investments.” Remember, your savings rate isn’t dependent on the stock market. And rather than locking up your money between now and retirement, you might be able to increase your emergency fund or even your savings for a large purchase in the next few years. Here’s how.
How can you increase your savings rate?
If you’ve set a goal to save more money in 2023, you’re in good company. Thankfully, there are a few key moves to help make this goal more achievable.
Automate your savings and make it easy
If you’re trying to put money aside, one of the kindest things you can do for yourself is to make it automatic. Calculate how much you want to save, run the numbers through your budget to ensure you actually can afford to save that much (keep reading for what to do if your savings goal isn’t supported by your income), and set up an automatic transfer from your checking account. You can set this up monthly or even for each paycheck. If the money is moved before you have a chance to spend it, you’ll be more successful at saving. Plus, this way you won’t even have to think about it beyond that initial setup.
Choose the right savings account
Ideally, automating your savings means you’re sending your money to the right savings account. Which is the right one? There are a few ways to tell. First, look for a high-yield savings account. The best ones are currently paying 3% or more on money stored in them, and you’re likely to find the best rates offered by online-only banks, as opposed to traditional banks. This means your saved cash will grow even more over time. And the more money you add to the account, the more growth you’ll see — there’s our old friend compound interest again.
Cut back — or bring in more money
If you wish to increase your savings, you need to have the money to save. While some finance experts will tell you to cut your discretionary spending to the bone and suck all the fun out of your life to achieve this, you will have more success saving more if you can make more money.
By all means, go through your budget and your bank and credit card statements to see where all your money is going. If your spending isn’t where you want it to be, definitely tighten things up and cut back. But also consider adding a side hustle, asking for a raise at work, or even changing jobs altogether to make more money. If you gain a higher income and make a plan to save more, it’ll be easier to meet your goals.
Saving more is key
If you’re hoping to have more money in your life available for emergency expenses or a big near-term purchase, the best way to achieve it is to increase your savings rate. While this may seem daunting, implementing some or all of these steps can help.
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