Boost Your Savings With Low-Risk Laddering Strategies

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When it comes to your savings account, does it leave you feeling unsure or even frustrated? Many people find themselves wondering if their savings are enough or feeling disappointed by slow progress. The truth is, whether your savings account is healthy or looking a bit underwhelming, you’re not alone—we’ve all been there. The good news is that there are effective ways to turn things around and make your money work harder for you. One of the best methods to boost your savings with low-risk laddering strategies involves leveraging your funds step-by-step to maximize growth while minimizing risk. By strategically organizing your accounts and investments, laddering allows you to build momentum, grow your savings faster, and set yourself up for both short-term and long-term financial success. Let’s dive into how these strategies work and how you can apply them to your savings goals.

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How Much Should You Really Have in Savings?

When you start researching ways to boost your savings, you’ll likely hear a lot of different information. And, with that information comes a lot of numbers you’re told you need to aim for. It can get confusing.

Many great financial articles suggest specific dollar amounts you should have tucked away in your cash accounts. These numbers, of course, need to take your expenses, lifestyle, and personal needs into consideration.

Are you building in a little bit extra for a cushion? It can get hazy as you try to figure out what your cash accounts should entail, as well as how you should earmark them.

To kick off your savings strategy, it’s important to understand what we mean by “cash accounts.” Here’s a quick breakdown of what they are:

• Cash Cushion
• Emergency Fund
• Savings Account

Cash Cushion

Your cash cushion is the minimum amount you should always maintain in your checking account. This balance should be enough to cover any monthly bank fees, avoid insufficient fund penalties, and handle minor unexpected expenses.

The ideal cash reserve varies from person to person. While one individual may feel secure with just $100 set aside, another might prefer to keep a constant balance of $1,000 in their account at all times.

Your cash cushion is a deeply personal figure—it’s a number you decide for yourself. Put simply, if your comfort zone requires maintaining $500 in your checking account, dropping below that amount can leave you feeling unsettled and uneasy.

Ensuring Your Cash Cushion Comfort Level

To dive in a little deeper, according to The Federal Reserve, many families today have little to no financial cushion. That same survey found that many Americans would have to either borrow or sell something to cover an unexpected $400 expense. It’s no wonder our lack of a cash cushion gives us anxiety!

Determine your ideal cash cushion amount and ensure you have that amount readily available in your bank account. This could be in your checking account or a separate, easily accessible savings account. Once your cash cushion is in place, you can shift focus to building your emergency fund.

Emergency Fund

It’s essential to have an emergency fund in case an unexpected crisis comes up (you blow a tire, your pet gets sick, your water heater dies, etc.). According to CNBC, 56% of Americans can’t cover a $1,000 emergency expense with savings.

Your emergency fund is not for vacations, new cars, retirement, or planned expenses. It’s a financial safety net, set aside exclusively for unexpected emergencies, helping you avoid relying on high-interest credit cards. Since this fund serves as a safety net rather than a traditional savings account, ensure it remains accessible and is reserved solely for true financial emergencies.

If you need to use your emergency fund, make sure to replenish it as soon as you can. Maintaining an emergency fund ensures you’re prepared for unexpected expenses and helps keep your financial plans on track.

Savings Account

When developing your savings strategy, it’s important to start with a solid foundation. Begin by establishing a cash cushion, followed by building an emergency fund. Once these are in place, focus on growing your savings account. But how much is enough? What’s a reasonable amount to keep in savings before considering investments to generate greater returns? Let’s explore these questions.

It’s often recommended that your basic savings account contains enough to cover three to six months of living expenses. In a strong economy, this is a reasonable target. However, during periods of economic uncertainty, aiming for nine to twelve months may be more prudent. The exact amount will depend on factors such as your industry, monthly expenses, and the broader economic climate. Use this as a flexible guideline to determine what works best for your financial security.

Three-to-Six Months

Having a savings account with three to six months’ worth of living expenses is a crucial financial safety net. It ensures you can cover your essential costs in case of an unexpected loss of income. Even if a job change or layoff seems unlikely, life can be unpredictable. Situations like a car accident, illness, or other unforeseen events can create financial strain, and having these savings can help ease the stress during challenging times.

In the event of an emergency, there’s always the risk of little to no income coming in, which can lead to increased reliance on credit cards to cover essential expenses. Considering factors like credit limits, credit history, existing balances, and interest rates, it’s easy to see how costs can add up quickly. To avoid this, maintaining three to six months of savings can provide a reliable safety net for most unexpected situations.

Eliminate Debt or Boost Your Savings: What Should You Prioritize?

It’s often said that you should prioritize paying off debt before investing, and while this is generally solid advice, there are some exceptions to consider.

If you have an employer-sponsored qualified retirement plan at work, such as a 401(k), and you’re contributing enough to receive your company match, keep it up! It’s an excellent opportunity to maximize your savings. Regardless of your current savings strategy, taking advantage of the match is always a smart move as you don’t want to give up free money!

Now, let’s consider a situation where you’re managing debt—such as credit cards, car loans, or personal loans. It’s worth asking: why invest your after-tax money to earn lower returns when you could focus on paying down high-interest debt instead? It’s an important point to reflect on.

Interest Rates vs. ROI: What Really Matters?

It’s likely that the interest rates on your debt are higher than the return on investment (ROI) you might earn from additional investments outside of your pre-tax retirement account.

It’s important to stay on track with your progress and timeline as you work to reduce your debt. High-interest rates on debt often outweigh potential returns, resulting in a negative ROI when compared.

Smart Strategies to Grow Your Savings

Now that you understand the importance of maintaining a cash cushion, an emergency fund, and a savings account (after addressing any debt), the next step is to focus on investing wisely. Once your cash reserves are in place, thoughtful investments can help ensure your money is working effectively for you.

Let’s explore the different types of savings accounts available to help you grow your money and achieve your financial goals.

Savings Accounts

Savings Accounts: Savings accounts, available through banks and credit unions, are FDIC-insured up to specified limits, providing a secure place to store your money. While they typically offer lower interest rates, they ensure easy access to your funds. Ideal for short-term savings, these accounts are perfect for maintaining an emergency fund.

High-Yield Bank Accounts

High-Yield Bank Accounts:  These accounts are similar to traditional savings accounts but typically offer a higher rate of return. Your funds remain accessible, though some accounts may charge a fee for withdrawals. While the interest rate is competitive, the growth potential is lower compared to other investment options. These accounts can be a smart choice for building your three-to-six-month savings.

Certificate of Deposit

Certificate of Deposit: Certificates of deposit (CDs) are more restrictive savings options that typically come with penalties for early withdrawal, often equivalent to about three months’ interest. CDs are available in a variety of term lengths, with longer terms generally offering higher interest rates. A common strategy is to ladder your CD terms, which can be a practical approach for planning a major future purchase or complementing your three-to-six months savings.

Money Market Funds

Money Market Funds: Invest in low-risk securities, which are known for their stability and are among the safest investment options. They typically offer returns comparable to short-term interest rates, making them a reliable choice for cautious investors.

U.S. Treasury Bills and Notes

U.S. Treasury Bills and Notes: Commonly known as “treasuries,” these are considered among the safest investments globally. They offer the benefit of being exempt from state and local taxes and come in a variety of maturity options to suit different investment goals.

Bonds

Bonds: Bonds are a low-risk investment option, issued by corporations, municipalities, states, and governments to finance various projects. When you purchase a bond, you essentially act as a lender to the issuer.

The right savings strategy depends on your unique goals and timeline. Consider when you’ll need access to the funds, the potential penalties for early withdrawal, and the interest rates. Connect with a financial consultant who understands your needs and can guide you toward the best solution for your situation.

Mastering Low-Risk Laddering: Strategies for Success

Creating a savings strategy can feel challenging, especially if you’re living paycheck to paycheck and don’t yet have an emergency fund. It’s common to think, “I’ll start saving once I earn more money.” However, the good news is that you can begin saving today. The first step is to establish a clear budget, and from there, you can start building your financial foundation and work toward your goal. 

I often remind friends and clients that it’s not just about how much you earn—it’s about how you manage what you earn. The rewarding part is that once you begin saving, you’ll likely find yourself motivated to see how much more you can grow those savings.

The key is to take that first step! Once you begin to see your progress, you’ll find it incredibly motivating and rewarding.

Stuck and Struggling? Here’s What to Do When Savings Seem Impossible

If you’re looking to grow your savings but don’t see much flexibility in your budget, it might be time to explore strategies for increasing your income.

There are many ways to boost your monthly income and reach your savings goals more quickly. If you’re employed, one option is to consider asking for a raise. While this can sometimes feel challenging, it’s important to recognize the value of your skills and contributions and ensure your compensation reflects that.

Take a moment to think about the last time you received a raise or a performance bonus at work. If it’s been a while—or if it’s never happened—it might be worth considering a new role or even exploring a different career path. It’s important to work in an environment where you feel valued and treated fairly.

Rev Up Your Savings: Tips to Turbocharge Your Finances

One effective way to boost your monthly income is by carefully reviewing your budget. Take a closer look at your current expenses and identify areas where you can cut back, even temporarily. Adjusting discretionary spending or reducing unnecessary costs can help free up extra cash to contribute to your savings. You might even discover that you don’t miss those expenses as much as you thought.

Boost Your Savings with a Side Hustle

Another idea might be to consider starting a side hustle. Many people find that a side gig can be an excellent way to increase savings and earn extra income. The best part is that if you prefer to work from home—or need to—you have plenty of options. With numerous remote opportunities available, it’s easier than ever to find flexible work that fits your lifestyle.

When considering significant changes in your life, it’s important to take the time to identify the right tools to support you in planning for the future. By layering your savings strategies and building on each approach, you can steadily grow your savings and be well-prepared for whatever life brings your way.

Leveraging Your Savings Strategies

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Once you get your budget rolling, check out my post on 6 Simple Steps to Get Financially Organized. This post also includes a helpful checklist available in my Resource Library (free to access).

Admittedly, this particular checklist has a larger-scale focus on your overall financial picture, but I genuinely feel that getting your finances organized is essential.

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