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1/31/2018

How to Keep Your New Year's Savings Resolution

What's on your 2018 list of resolutions? CIT Bank's recent Harris poll1 found that saving more is a top New Year's resolution across generations, especially among Gen Xers and Millennials. If one of your New Year's resolutions is to build your savings, here are some concrete steps you can take to achieve your financial aspirations and keep your resolution.

Automate your savings

After paying for your housing, transportation, food, utilities and other necessities, what do you do with your leftover money? Do you put it in a savings account? If you're like many people, the answer is "no"–you spend it! And while you may have a lot of company, this isn't the best strategy if you are trying to grow your savings.

One trick to boosting your savings is to pay yourself first–before paying for any of your living expenses. An easy way to do this is to set up an automatic savings plan. An automatic savings plan diverts a designated percentage of your paycheck directly into some type of savings account before you have a chance to spend the money. Paying yourself first is a good strategy for building an emergency fund, saving for retirement, or setting aside money to achieve a long-term goal such as buying a home. Your money will earn interest, and you will be less tempted to spend those funds on non-essentials.

Maximize your employer's 401(k) match

If your company offers a 401(k) retirement plan and matching contributions, be sure you are contributing at least the minimum amount you need to receive your employer's maximum contribution. For example, if your employer matches 401(k) contributions at 50% up to 5% of your salary, contribute at least 5%. Don't miss out on free money!

Pay off your credit cards–then pay yourself

Have a lot of revolving credit card debt? You are not alone. Recent research found that the average American household has approximately $5,700 in credit card debt. It's no surprise then that paying off credit cards is one of the most common New Year's resolutions. Make it a priority in 2018 to pay off as much of your high-interest credit card debt as possible.

Once your balances are paid off, take the money you were paying each month for your credit cards and add it to your savings account. Building your savings account will help you have a cash reserve you can turn to for covering large, unexpected expenses in the future, instead of resorting to your credit cards.

Get more from your savings account

The beginning of the year is a good time to assess your current savings account. If you have a standard savings account that is not giving you the competitive interest rate you want, but you don't want to lock your money in a CD, a high-yield savings account may be an ideal choice. You'll earn more interest than you would with a standard savings account while preserving access to your money. The interest rate is not fixed, so it may increase if rates rise, while it may also decrease if rates decline.

Open a CD

Having a significant amount of money in a savings account is wonderful, but your money may not be working as hard for you as it could be. If you do not anticipate needing access to your money for some time, consider moving some of your funds to a certificate of deposit (CD).

A CD is a low-risk savings product that features fixed interest rates that are typically higher than savings account interest rates. In exchange for those higher rates, your money is locked in for a specific time period, known as the CD's "term". CD terms vary, but most options fall somewhere between three months and five years. The longest-term CDs generally offer the highest rates.

When evaluating your CD options, keep in mind when you may need the cash. A 5-year CD may be a good choice if you are saving for a longer-term goal, such as retirement. If you are putting away money for a down payment on a home and are thinking about buying a house within the next two years, a shorter-term CD is a better pick.

Ladder your CDs

If you would like to transfer money from a savings account into a CD but want to have more frequent access to your money, think about CD laddering.

illustration of person climbing ladder to cloud of money

CD laddering is a savings strategy in which you open several CDs with different maturity dates. By staggering maturity dates you can maintain more flexible access to your funds while also taking advantage of any higher CD rates that may be available.

Here's how CD laddering works:

  1. Divide the total amount of money you want to save across several CDs. Choose a mix of both short-term and long-term CDs.
  2. When the CD with the shortest term matures, use all or a portion of the cash as needed. Reinvest any money left over into a CD that is equal to the longest-term CD you have.
  3. Continue the process as your CDs mature.

It can be hard to keep up with New Year's resolutions, even when you have the best intentions. If you fall off the savings wagon, simply get back on and don't get discouraged. Once saving more becomes a habit, you'll be able to build your wealth gradually throughout 2018 and beyond.

Ready to get started?

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