How to start microsaving
Saving money can feel like a far-off financial goal. With so many pressing needs and expenses, savings goals can end up on the backburner. However, a strategy known as microsaving could help you stay the course and ensure your savings habit sticks. Ally Financial explains how microsaving works and tips to get started.
What is microsaving?
Microsaving refers to regularly putting away small amounts of money often in a savings account. How frequently you make these deposits is up to you and depends on the technique you use.
How does microsaving work?
While you could manually set aside a small amount of money — say, $5 from each paycheck — toward your savings, many approaches to microsaving are automated. This allows you to “pay yourself first” by pulling your savings directly from your paycheck through a method like direct deposit.
Over time, these seemingly insignificant amounts can really add up. When you put your savings in an account with a competitive interest rate that compounds daily, your money will perform even smarter for you.
Why should you consider microsaving?
If you currently feel you don’t have space in the budget for saving, microsaving might be a great approach to get started. Starting small can help new savers, or those who are looking to start again, get over the initial challenge of setting money aside.
What are the benefits of microsaving?
Microsaving allows you the freedom to put aside however much you can truly afford. Setting high savings goals can sometimes result in needing to dip back into your savings to pay for everyday expenses or emergencies. A micro approach to your savings can help you build a long-term habit slowly as opposed to saving in bursts.
By taking a more incremental approach, you can keep a little extra money on-hand for your spending needs. Leaving your savings untouched helps ensure your money has the time to grow — especially if you’re keeping it in an interest-bearing account.
Putting money aside, no matter the amount, allows you to make progress toward your goals. Seeing your savings grow can be a great motivator to help you keep moving forward financially.
How microsaving can help you save for small luxuries
Take time to brainstorm specific small luxuries or nonessential purchases you’d like to save up for. Whether you want to purchase a new gadget, try out a high-end restaurant in town or even plan a spa weekend with friends, creating clear goals and setting aside small amounts of money allows you to gradually build up the funds needed without feeling overwhelmed.
Examples of microsaving
If you are contributing to a retirement account or adding small amounts to your investment portfolio, you could set a low contribution percentage, like 1% of your income. Once you’re comfortable with that amount, try increasing by small increments. You can also create recurring transfers between your accounts to ensure your money moves where you want it to be automatically.
Whether it’s $5 or $50, regularly applying some of your income toward your next financial goal will help you get there faster.
This story was produced by Ally Financial and reviewed and distributed by Stacker.
