Saving on a regular basis can help you make progress toward achieving your goals and better handle unexpected expenses when they come up.
At a glance
This module can help you create a savings plan with weekly targets to help you reach your goals.
Saving and asset limits
Finding a place for savings
Saving at tax time
Introduction Savings is money you set aside today to use in the future. It could be for something you need in the next few months or even years from now.
People save for many reasons:
• Unexpected expenses and emergencies
• A bill they know will be due every few months, like car insurance
• Annual expenses like children’s school supplies
To pay for their own goals, like a new TV, appliances, a car, a home, their children’s education, or retirement
Reasons to save
Everyone has their own reasons to save, but there are common categories that most people think about when setting their savings goals.
SAVING FOR EMERGENCIES
Everyone has unexpected expenses and emergencies—a car repair, the need to travel to help a sick family member, paying the bills when you’ve had a cutback in hours or even lost your job.
When you save in advance for unexpected expenses and emergencies, you‘re better prepared to handle them without having to skip paying your other bills or borrowing money.
If you have to skip paying other bills to pay for an emergency, there can be negative consequences like having to pay late fees or having services turned off.
If services like your electricity or other utilities do get shut off, then you have to come up with even more money to turn them back on.
If you borrow money for unexpected expenses, you will likely have to pay fees and interest on what you borrow.
And on top of that, you’ll probably have to use some of your future income to pay back the money you borrow.
So saving money now for unexpected expenses and emergencies can save you money later.
Consider starting an emergency fund with $500 as your goal.2
This is enough to cover a lot of common emergencies like a new tire for your car, a plane ticket to care for a sick family member, or minor medical costs.
Once you reach $500, consider increasing your goal to $1,000.
This may be enough to help cover your rent if you lose your job, take care of an insurance deductible for major car repairs, or pay for many household repairs.
Having this kind of emergency savings fund is the foundation for setting other savings goals.
Once you have this set up, it’s easier to focus on saving for other things without worrying about how you would handle an emergency expense.
SAVING FOR PERIODIC EXPENSES AND GOALS
Once you have some money set aside for unexpected expenses you can start planning for upcoming expenses and goals.
Many people have goals they want to accomplish that require saving money.
Some goals can take several months to achieve, like saving for a new TV.
Others can take many years, like paying for a child’s education.
If you decide to save money for a goal, make sure the money you’re saving is separate from your emergency fund.
That way, if an unexpected expense comes up, using your emergency fund won’t come at the cost of achieving your goal.
It’s also important to save for periodic expenses (those that come only once or a few times a year) like renters insurance, income taxes, car insurance, or children’s school supplies.
While they’re not unexpected, these expenses can be difficult to pay for all at once if you haven’t been setting money aside for them.
SAVING FOR LEAN TIMES
Saving money is particularly important if your income fluctuates or varies from week to week.
This could be because your income changes depending on how many hours you are scheduled to work each week.
It could also be because you work seasonally, rather than year-round.
In both situations, setting aside money in weeks or months with higher income can help you pay your bills on time when your income decreases or stops.
SAVING FOR EDUCATION
Saving for college or technical training for you or your children may be one of your goals.
Training and education after high school or completing a General Educational Development (GED) test can be an important investment of both time and money.
Saving for education can reduce the amount of student loans you need and may provide more options for education and training after high school.
There are many financial products that can help you save for an education, including savings accounts and certificates of deposit.
There are also investment products designed specifically for this purpose.
One option is a 529 college savings plan.
These tax-advantaged savings plans can help parents, guardians, grandparents, and others save and invest for an education.
For more information on saving for education expenses using a 529 plan, visit collegesavings.org.
TO TEACH YOUR CHILDREN ABOUT SAVING
In addition to leading by example with your own savings, one of the best ways to teach your children about the importance of saving is to start a savings account for them.
There are many benefits of opening a savings account for a child. This kind of account can:
• Provide a secure place for a child to put money they earn or receive as gifts
• Introduce a child to saving and using financial services
• Help to establish healthy attitudes about money and saving
• Help a child to learn to plan for the future
• Provide a way to work with your child to achieve a goal together
Check with your bank or credit union to see if they are able to open an account in your child’s name or a joint account in the name of both you and your child.
Each financial institution has its own policies, so research local and online bank and credit union options.
Saving at tax time.
Ways to save throughout the tax process.
TAKE ADVANTAGE OF FREE TAX SERVICES
If you need assistance in preparing and filing your returns one of your choices is to visit a Volunteer Income Tax Assistance (VITA) site.
IRS-certified volunteers can help you file your taxes and make a plan for your refund, all for free.
Eliminating preparation fees can make a big difference in your ability to start or build your savings, or pay bills and expenses.
Find a site by visiting irs.treasury.gov/freetaxprep or call (800) 906-9887.
UNDERSTAND FEES FOR PAID PREPARERS
If you use a paid preparer to do your taxes, they may offer you a refund anticipation check.
This is when any fees you owe for tax preparation are taken out of your refund amount, which is deposited onto a prepaid card or into a bank account.
There are additional fees you pay for this service (typically ranging from $25-$55), on top of the tax preparation fees.
Despite their name, refund anticipation checks don’t get you money faster than filing your taxes online and using direct deposit.
CLAIM ALL OF YOUR TAX CREDITS
You may qualify for one of these common tax credits:
• The Earned Income Tax Credit (EITC) is a benefit for people who are working, but have low-to-moderate income.
The amount of the credit is based on your income and filing status.
Income limits and other rules for the EITC change every year.
You can look them up by visiting irs.gov/creditsdeductions/individuals/earned-income-taxcredit.
• The Child Tax Credit (CTC) reduces the taxes you owe by up to $2,000 for each qualifying child under the age of 17 who meets certain criteria.
The refundable portion of the credit is limited to $1,400. This amount will be adjusted for inflation after 2018.
In order to receive the child tax credit (i.e., both the refundable and nonrefundable portion), a taxpayer must include a Social Security number for each qualifying child for whom the credit is claimed on the tax return.
For the most current information visit irs.gov/publications/p972/ar02.html. The IRS is required to do additional verification of information on tax returns claiming the EITC and the CTC.
This may cause some delay in the receipt of refunds that include these tax credits.
CONSIDER DIRECT DEPOSIT
If you’re receiving a refund, using direct deposit is free and faster than a check.
Depositing part or all of your refund into your account or onto a prepaid card keeps your money secure until you need it.
Have your account information ready.
If you’re filing your own return there’s space on the form or in the software to enter your account information for direct deposit.
If you’re getting help filing your return make sure to bring your account information with you.
KICK-START YOUR SAVINGS
Your tax refund can help you pay for things you need right now or help you save for things you want down the road.
Great, no-hassle ways to save:
• Keep part of your tax refund in a separate account, like a savings account, so you’ll have money for sudden expenses.
• Purchase a Series I Savings Bond and earn interest from the government.
You don’t need a bank account and you can give bonds as a gift.
For more information visit treasurydirect.gov/indiv/research/indepth/ ibonds/res_ibonds_ibuy.htm