Between lingering inflation and costly loans, 2023 was an expensive year — and people are anxious to build a financial cushion in case more of the same comes their way in 2024.
A new GOBankingRates survey of more than 1,000 adults found that 15% of people hope to bank up to $1,000 next year, with smaller percentages shooting for $2,000, $3,000 or $4,000. All counted, more than half believe they’ll need to squirrel away as much as $5,000 to manage rising costs in the coming year — and you might be wise to make the same effort.
Here are the signs that you should dedicate yourself to building a $5,000 barrier against financial trouble starting Jan. 1 — and a few tips on how to get there.
If 2023 made it feel like there was more time between paychecks, and if you took on revolving debt to make ends meet from one pay period to the next, it’s time for a change in 2024.
“There are two clear signs it’s time to cut back on spending and increase savings,” said Bethany Hickey, a personal finance expert with Finder. “You’re using your credit card for monthly expenses more often and you’re living paycheck to paycheck.”
If you’re heading into the new year without enough cash in the bank to get you through a period of job loss or unexpected expenses, make changing that your first priority.
“I coach that nine months of emergency savings is needed for financial resilience,” said personal finance expert Keisha Blair, international bestselling author of the “Holistic Wealth” book series, founder of the Institute on Holistic Wealth and host of the “Holistic Wealth” podcast. “In addition, everyone should plan for at least two life-altering setbacks per decade.”
Nine months is high compared to the industry standard of three to six, but it’s hard to argue that more isn’t better. Either way, life without an emergency fund is a disaster waiting to happen. Avoid one by committing to saving as much as you can in the new year.
As you close out 2023, watch for signs that your life is about to get more expensive in 2024.
“Someone may need to save an extra $5,000 if several indicators point to higher costs ahead,” said Malcolm Ferrante, an ACCA-accredited expert specializing in international finance, investments and taxation as the head of the Investment Migration Unit at CSB Group.
Some looming expenses are self-evident, like if you’re about to have a baby or send a teenager to college. But others might take a little more digging to spot.
“Things like longer commutes as fuel prices remain high, upcoming home or car repairs and maintenance and discretionary expenses like travel and entertainment,” Ferrante said. “Check projected insurance and utility rate hikes as well.”
This year, the two big stories about borrowing and lending were the highest interest rates in two decades and the end of pandemic-era college loan pauses.
If either of these apply to you, your New Year’s resolution should include padding your financial cushion.
“People with outstanding student loans or medical debts should prioritize saving ahead of other things,” said J. Tucker Merrigan, attorney and managing partner at Sweeney Merrigan Law. “Saving for inflation-related costs can help make sure that you can keep paying down your debt, so you don’t risk finance charges or penalties.”
Getting halfway to five-figure savings is no simple task; but, considering the lessons of 2023, it’s worth making the effort.
“An extra $5,000 a year isn’t easy to save, especially since nearly a quarter of all Americans have no money saved in case of emergency,” Merrigan said. “However, building this nest egg can keep you from suffering a much larger hardship.”
Many people will try to launch side hustles to come up with extra cash in 2024, but increased income from the job you already have is a more direct route.
“The best way to get $5,000 or more is to get it from your employer through a pay increase,” said Darius Smith, money coach and founder of Wealth is my Worth, where he advocates wealth building through income without entrepreneurship. “Start now, be intentional and, before the end of the year, you can reach your goal.”
According to Raise Guide, Smith is right. Now is the perfect time — but you don’t have any to waste. Late December is ideal for seeking a raise because that’s when companies finalize their budgets for the coming year and are most likely to consider salary adjustments.
“Speak to your boss about a raise or higher-paying role,” Smith said. “Ask what accomplishments must be met to justify the increase.”
If your boss won’t budge, both Smith and Raise Guide say to work toward the goals your employer outlines and try again in roughly six months or at your next performance review.
“Don’t forget to document your accomplishments,” Smith said, “and, if your employer doesn’t accept, you are now armed with heavy ammunition in the case that you need to speak to new employers offering higher pay.”
More income is one path to $5,000. But if that’s not possible, you’ll have to get there by spending less.
“If you find that you are going month to month cash-strapped and having to tap into credit cards,” Blair said, “it’s time to cut some expenses, including subscriptions and other discretionary items, and save more instead.”
You don’t have to live like a pauper, at least not forever. Once you reach your $5,000 target, you’ll have earned the right to loosen your budgetary belt.
Said Blair: “Living frugally will help stop the bleeding until you bounce back.”
If debt is following you into the new year, the bank is getting the most out of today’s elevated interest rates at your expense. But every interest-earning dollar you bank tips the balance back in your favor — and investment-level yields of up to 5.5% are yours for the taking.
“A great way to reach that goal is to open a high-yield savings account as an ‘extra expense’ sinking fund,” said Melissa Jean-Baptiste, financial educator and author of “So This Is Why I’m Broke: Money Lessons on Financial Literacy, Passive Income, and Generational Wealth.”
“By adding additional income, whether that is discretionary or side hustle money,” she said, “they are not only putting money away for a rainy day, but they are also earning passive income from their interest — a two-fer! If $5,000 is the goal, that is about $416 a month, which most Americans do not usually have just lying around. That doesn’t mean they can’t start where they are and work their way to bigger contributions. Starting with even just $50 a check would be an additional $1,300 saved as they navigate to find new streams of income to supplement expense increases.”
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This article originally appeared on GOBankingRates.com: 4 Signs You Will Need To Save an Extra $5,000 in 2024 — and 3 Ways To Do It
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