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This past year has been an eye-opening experience for many of us. The pandemic has proven just how much our decisions and actions have consequences. This is especially true when it comes to money. If you don't make saving and investing a priority during the good times, the lean times can be catastrophic.

Americans Don't Save Enough Money

Young attractive caucasian couple arguing about wasting their savings on unnecessary things. They don't have enough money on account to pay bills.

It will be years before the full economic impact of the COVID-19 pandemic–and the government response to it–is fully known and understood. But it was already obvious before 2020 that Americans weren't saving enough money.

Even during the years of a booming economy, low inflation, strong job growth, and a seemingly never-ending bull market, Americans still weren't stashing enough cash. In 2019, the Federal Reserve revealed in a survey that nearly 40% of Americans didn't have enough money in the bank to handle a $400 emergency.

According to American Express National Bank (member FDIC) a spring 2018 survey by Bankrate.com showed that 40% of participants were saving less than five percent of their income. On top of that, 19% weren't saving anything at all.

A separate survey found that millennials are worse savers than older generations. The numbers showed that 46% of millennials had zero savings compared to "only" 33% of baby boomers (ages 55 to 65).

Personal financial health isn't just about unexpected events and surprises. Not having a proper saving and investment strategy makes it difficult to buy a new vehicle when you need one, make improvements to your home when necessary, or even sign your kid up for an extracurricular activity.

Living paycheck-to-paycheck is a stressful way to exist. And if you don't have a plan for breaking out of that financial existence, it's never going to happen.

Budgets Are a Roadmap to Financial Success

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So right now, you're probably thinking, "Thanks Oola for the shocking news that having money makes life easier." And many of you are probably also wondering, "How am I supposed to save money when I barely make enough to cover my monthly expenses?"

If every month you find yourself trying to figure out where your money goes—or why you can't afford to do this or that—chances are you aren't creating a budget before each month begins.

As The Total Money Makeover author Dave Ramsey always says, each month you should be telling your money where to go instead of wondering where it went. When you create a budget before the beginning of each month, you are creating a plan for your income.

When you actually take the time to look at where your money goes, you might be shocked to find out how much you are actually spending every month on coffee runs, fast food, and late-night Amazon sessions.

Once I started using the Every Dollar Budget app (which is completely free), it changed my world. Before each month begins, I enter in how much income I expect to have coming in over the next 30 days. Then, I list out my expenses and make a plan for when they will be paid.

I can't explain how freeing that feeling is. Every dollar that passes through my hands is a little soldier in my daily money battles. Some of the soldiers work to cover basic expenses. Some hang out in my emergency fund and are ready to deploy when a surprise comes. There are also those that work hard in a Roth IRA and earn interest.

Creating a budget also allows you to find money that you can set aside for a rainy day and invest in your future. One less coffee every week can put 20 bucks a month into your savings and investments. Small changes like this can add up very quickly.

Saving Money in Your 20s

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When you're in your 20s, your savings goal should be to create an emergency fund that can cover three to six months of expenses. This fund is something you carry and build upon over the course of your working life.

The idea is to build up the emergency fund enough to cover three to six months’ worth of housing, transportation, food, health care/insurance, utilities, and debt payments. When you have a fully-funded emergency fund, it will help you avoid high borrowing costs related to credit cards and high-interest loans.

Some of the best financial tools for jumpstarting your short-term savings goals in your 20s are high yield savings accounts, like the American Express High Yield Savings Account and Certificates of Deposit (CDs). These products keep your money liquid and accessible. And you don't even have to use a brick and mortar bank.

Neither the American Express High Yield Savings Account or CDs have minimums or monthly fees. It's simple to transfer money or make automatic deposits into their accounts, and you can manage your savings online. The interest on their short-term savings accounts is compounded daily and is deposited into your account every month.

When it comes to investing for retirement, time is on your side in your 20s. If you start putting 25 bucks a week into a Roth IRA at the age of 22—and continue to do so until you are 65—your retirement account (with an average rate of return of 7%) would be worth more than $300,000.

It's surprisingly easy to get into the habit of saving money. When you're in your 20s, get into the habit of making savings a "default" activity. Set up automatic paycheck withdrawals into your savings and retirement accounts. Amounts as small as $20 per paycheck can end up making a huge difference in the long run.

Saving Money in Your 30s

Saving Money in Your 30s Young couple is saving money for their new home.

When you reach your 30s, experts suggest that for long-term retirement the goal should be to have cumulative savings equal to your salary. If you are making $40,000 per year at the end of your 30s, the best scenario is to have $40,000 in retirement savings in addition to your emergency fund.

Break it down over 10 years, that would be $4,000 per year or $333 per month. Of course, you will also be earning interest on your investments. The idea of saving more than $300 a month for retirement may sound out of reach, but all of these numbers are relative to your income.

At the same time, you can still use high-yield savings accounts—like the American Express High Yield Savings Account—for your emergency fund and CDs for big purchases. This is a reliable short-term savings method that can last well into retirement.

Saving Money in Your 40s

When you reach your 40s, experts suggest cumulative savings equal to three times your salary. This doesn't mean you have to increase your monthly contributions. The power of compound interest and time will continue to build up your retirement accounts.

Saving Money in Your 50s and 60s

Saving Money in Your 50s and 60s

By the time you reach your 50s, experts suggest your savings should be at least six times your annual income. In your 60s, they suggest eight to 10 times your income. If you've put effective savings strategies into place for a decade or two, you should be in a position to retire. Then you can start living off of your investment dividends.

Savings Accounts for the Short Term

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There is a difference between the accounts you put money in for short-term savings and those marked for retirement savings. Short-term savings accounts are for emergency funds and big purchases.

High-yield savings accounts, such as the American Express High Yield Savings Account, offer variable rates of interest that are usually higher than traditional savings accounts. Yet, they are still accessible during emergencies. CDs are a great option for big purchases. If you are saving up for a down payment on a house or a new vehicle, you can use a CD with a fixed interest rate.

The rates of return are higher with a CD. However, you usually can't take your money out until it reaches maturity. Generally, CDs mature in terms ranging between six to 60 months, with numerous stops in between.

Money-Saving Tips

When you are making a big short-term purchase, it's a good idea to be patient. Resist the urge to buy now and think it over instead. Some experts suggest waiting one day for every $100 you are thinking about spending.

Also, when you are thinking about making a big purchase, consider just how many hours of work it will take to pay for it. If you want to buy that new 4K flat screen you saw on sale for $800, just remember that it will take 53 hours of work to cover that purchase if you make $15 an hour.

Oola's Takeaway

Piggy Bank Wearing Sunglasses Relaxing

Economies are very cyclical, which means this current downturn won't last forever. You can't control the economy, but you can take control of your personal finances. If you make small changes like creating a budget at the beginning of every month and setting up automatic deposits into high-yield savings accounts such as the American Express High Yield Savings Account each paycheck, your financial health will improve tremendously.

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