Top Reasons Why Americans Are Not Saving Money

Fifty-three percent of US households have no emergency savings, according to a report by AARP. If you're among those without a cash cushion, you could be putting yourself at financial risk. There are many reasons why people may find it difficult to save, including:

• Not knowing where to save.
• Not knowing how to save.
• Not having enough money to save.

Here are smart financial steps to take if you need help overcoming your barriers to saving.

Pay Off Your Debt

Paying off debt may not seem like saving, but it is. When you get rid of debts like student loans and credit cards, you're laying the foundation you need for financial stability in the future.

Once it's paid off, the money you've been paying toward your debt can now be applied to savings, where it has the potential to grow. You're earning interest instead of paying interest. If you have several debts you're trying to pay off, consider using the debt snowball method to make your plan work.

With this strategy, you put your debts in order from lowest balance to highest. You put any extra money toward the debt with the lowest balance and pay the minimum on everything else. Once that debt is paid off, you apply what you were paying on that debt to the next debt, and so on.

Build Emergency Reserves

Emergency reserves are funds set aside for true emergencies. This is the money you'd draw from if you got sick and had an emergency doctor visit or your car broke down.

An ideal amount to aim for is three to six months of expenses, but if that sounds intimidating, start with socking away enough for one month. From there, you can continue building your emergency savings with regular monthly contributions. Set up an automatic deposit from your paycheck into your emergency fund or an automatic transfer from checking to savings.

Separate Short- and Long-Term Savings

While you may park emergency savings in a savings account, longer-term savings goals, such as planning to purchase a home, can be better served with a different type of savings account.

Consider whether your savings goals are ones you're working towards in the near future or if you have several years to plan. Then, decide whether to incorporate a money market account or Certificate of Deposit (CD) into the savings mix. Money market accounts are similar to savings accounts, but they allow you to write checks or debit funds directly from the account using a debit card.

CDs are also deposit accounts. You deposit your money into a CD with a set term, and at the end of the term, your CD matures and you can withdraw the funds plus interest. You can withdraw money from a CD before maturity, but you lose some or all of the interest earned. CDs are good longer-term savings vehicles if you want a little more interest but quick access to your funds in a pinch.

Max Out Retirement Plans

Take advantage of your 401k match if your company offers one. Getting the full company match is essentially free money, and it's best not to leave it on the table, especially if you're behind on retirement saving. If your company offers a 401k, increase your 401k contribution amount to at least what the company matches each year.

After that, consider how you can max out additional retirement savings accounts. For example, contribute to a traditional IRA if you'd like to get a tax deduction or a Roth IRA to enjoy tax-free withdrawals in retirement.

Round those tax-advantaged savings options out with contributions to a Health Savings Account (HSA) if you have a high deductible health plan. Once you turn 65, you can withdraw funds for non-medical expenses without a penalty.

Invest in a Brokerage Account

Put money into a brokerage account once you've maxed out tax-advantaged retirement accounts. It’s an account that allows you to invest in stocks, bonds, mutual funds, and other investment vehicles. There are no tax benefits to a brokerage account, but it's useful for building additional savings.

Getting Started With Saving

Where you start with saving depends on your current financial picture and your goals. Many people start with building up an emergency fund. Even a small one can help take the sting out of unexpected expenses.

Next, consider paying off high-interest debt like credit cards. From there, you may want to add more to your emergency fund or start building up your retirement savings.

Regardless of where you decide to start, the important thing is to start. Even putting a little in savings out of each paycheck can add up over the long term.

The Balance does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future performance. Investing involves risk, including the possible loss of principal.