How to Get Your Savings on Track

From starting an emergency fund to using a retirement calculator and catch-up contributions to plan retirement savings, see 9 steps to get your savings on track.
Financial Expert
Managing Editor

Whether it’s losing weight, learning a foreign language, or cleaning out an over-neglected garage, the goals we set for ourselves can sometimes be intimidating, especially so when it comes to finances. For many, the prospect of retirement saving can seem too big a task to even begin.

Setting goals doesn’t have to be a scary thing, though. When a job is too big to take on all at once, the best thing to do is to tackle it via a series of smaller steps over a long period of time. This makes the task easier to accomplish, as long as you start taking steps in the right direction.

Think about the process of retirement saving. A young person starts out directing a few dollars a week into a 401(k) plan. At that rate, it doesn’t seem like the money will ever amount to much. Yet, according to the Employee Benefit Research Institute (EBRI), older, longer-tenured employees have an average of around $290,000 in their 401(k) plans.

How can you build up that kind of nest egg and go beyond to accumulate the money you’ll need for a comfortable retirement? Whether you are just starting out or are well into your career, there are probably multiple things you can do to improve your savings program.

9 solid steps to start saving for retirement

They say a journey of a thousand miles starts with a single step. Below are nine different steps you can take toward a wealthier retirement; and in many cases, once you take these steps initially, they will continue working to build savings on your behalf for years to come.

  1. Get your spending under control
    Face it – spending and saving are natural enemies. To give saving the upper hand, you need to start by getting a handle on your budget. If you have your paycheck directly deposited, try having that money go into a savings account rather than a checking account so that not all your pay will be immediately available for spending. You can then transfer a budgeted monthly amount from savings to checking, so you will start saving what’s left over by default.
  2. Start eliminating credit card debt
    Even if your spending is under control, with credit card interest rates north of 16 percent and the average savings account rate still under 1 percent, your savings will likely go backwards unless you start eliminating credit card debt. This is especially urgent now that credit card rates are rising rapidly. The average rate being charged on credit card balances has reached 16.46 percent, which is up by more than three full percentage points in the past four years.

    Prioritize your debt so you pay down the balances with the highest interest rates first, and then work towards paying off any other remaining balances after that.

  3. Bank at least half your next raise
    Finding it difficult to carve out room in your budget for savings? Try this: the next time you get a raise, devote half of that pay to your savings account. This will allow you to easily add money to your savings account without your current lifestyle taking a hit. Get in the habit of doing this with each raise you get over the years and steadily watch your savings ramp up.
  4. Build a viable emergency fund
    A first step as you start to save should be to accumulate an emergency fund to cover unexpected financial needs. A good target is to build up enough to cover three to six months’ worth of essential expenses. Having this reserve of money available could save you from running up expensive credit card debt when an unexpected need occurs.

    Many experts recommend keeping this type of emergency fund in a savings account so it can be accessible at any time. That’s sound advice, but assuming emergencies are the exception rather than the rule, you may find it worth putting the money into a long-term CD. Rates on long-term CDs typically exceed those of savings accounts by enough that it may be worth paying an early withdrawal penalty on the CD upon the rare occasion you’d have to break into it. This is especially true if you look for a CD with a competitive interest rate and a relatively mild early withdrawal penalty.

  5. Be more selective with how you bank
    The more that you accumulate your savings, the more important it will be that you earn a good interest rate. Whether you open a CD, money market account or savings account, shop around for a competitive rate. Also, look for a checking account which is free of monthly fees – free checking accounts are in the minority these days, but they do still exist.

    When it comes to both finding the highest interest rates and free checking, online bank accounts can be a great place to look because in general they offer customers more generous terms than traditional, branch-based accounts.

  6. Take full advantage of your employer’s 401(k) plan
    If your employer has a 401(k) plan you have the opportunity to defer income taxes on both the money you put into it and any investment earnings on that money. If your employer offers a matching contribution, an immediate goal should be to contribute enough to earn the full match available. Otherwise, you will be walking away from money that could be yours.
  7. Develop a career plan
    The EBRI found that not only do older employees tend to have larger 401(k) balances, but within the same age groups, people with longer tenures in their jobs tend to have even larger balances.

    Changing jobs can sometimes work to your advantage, but if your career changes directions too frequently it can hold you back. Whether you are 25 or 55, have a game plan for how the rest of your career should play out. The more you can make of your earning power, the easier it will be to save for the future.

  8. Use a retirement calculator to see where you stand
    Once you start regularly putting aside some retirement money, use a retirement calculator to see if you are saving enough to meet your retirement goals. Don’t fret if you can’t get all the way up to your saving target right away – at least if you do a little planning, with a retirement calculator you will know what to shoot for.
  9. Make use of catch-up contributions to 401(k) plans and IRAs
    While it pays to start saving early, the reality is that many people find themselves late in their careers with retirement savings lagging well behind where they should be. Fortunately, there are additional retirement savings tax breaks, known as catch-up contributions, available to people in that position. 401(k) plan participants who are aged 50 and over can contribute up to an extra $6,000 a year to their plans, while Roth or traditional IRA owners in that age group can contribute up to an extra $1,000.

More resources on retirement savings:

9 ways to get serious about money

How do I invest my 401(k) two years from retirement?

Budgeting tips: 6 mistakes to avoid

Richard Barrington has been a Senior Financial Analyst for MoneyRates. He has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications. Richard has over 30 years of experience in financial services. He has earned the Chartered Financial Analyst (CFA) designation from the Association of Investment Management and Research (now the “CFA Institute”).