Paying off debt might seem like the most important thing to do for your financial health, but building up a savings buffer is just as critical. That way, when unexpected expenses come up, you’ll have funds set aside — and you won’t fall deeper into debt.
Here are common banking tools to use that can help you pay off debt while adding to your savings.
Set up multiple bank accounts
Having both a checking account for daily expenses and a savings account for an emergency fund and future expenses is key to managing your money. And using more than one of each account could help you reach more specific savings and debt payoff goals.
“The simple act of separating individual goals can be helpful,” says Hussein Ahmed, CEO of online bank Oxygen.
Ahmed recommends using a “bucket” approach, setting up separate accounts (or buckets within one account, if your bank offers that feature), each dedicated to a specific purpose. You might have one checking account for regular expenses and another earmarked for paying off debt, one savings account to build up your emergency fund and another for vacation savings, for example.
Enroll in direct deposit and automate savings
“It is much easier to set the funds aside as a percentage than it is to have it hit your checking account and then move it,” Ahmed says. “You will forget, and the temptation to spend it is too great.”
To minimize decision-making around savings, automate savings transfers with:
Direct deposit. If your employer offers this service, have your paychecks automatically deposited into your bank account. If you can, split paychecks between bank accounts.
Automated recurring payments and transfers. If split direct deposit isn’t an option, set up recurring transfers to take place on the dates your paycheck arrives, so that money automatically moves from your main checking account to other accounts. You can also set up automatic debits to creditors.
One key reminder: “Automation is not an excuse for you to stop paying attention to what’s happening,” says Bruce McClary, senior vice president of communications for the National Foundation for Credit Counseling. To avoid errors and related fees, check that payments are being made in the right amounts to the right places at the right time, he says.
Take advantage of cash-back opportunities
There are checking accounts that let you earn cash back for debit card purchases. Hussein recommends automating your accounts so that your cash back goes directly into savings.
Add roundup programs
Some financial institutions offer a roundup feature, which can help you build savings. For every purchase you make, the bank will round up the amount, usually to the nearest dollar, and put the difference into a savings account. This way, you’ll save in small amounts that you’re unlikely to notice.
“Think of roundups as the modern-day digital piggy bank — all that spare change you throw into a bucket and check later,” Ahmed says. “Only this time, it’s added to your savings immediately and hopefully earning some interest.”
Putting away tiny amounts might not seem important, but building up savings starts with just a couple of dollars, says Tania Brown, a certified financial planner and partner at SaverLife, a nonprofit whose mission is to help working families save money. With savings, “it’s a marathon, not a sprint,” she says.
Use the right accounts and banking tools for effortless consistency
If you’re not satisfied with your debt reduction progress, don’t drain savings or stop saving. Instead, look for ways to cut expenses, McClary says. Even if you’re not saving up or paying off debt at the rate you want, understand that it’s OK to do a little of both as long as you’re consistent.
To help your funds grow even faster, use a high-yield savings account that will pay more in interest than a regular savings account.