Grow Your Savings
Opening a savings account is a relatively simple procedure, but building the balances to a significant amount may seem challenging. We often forget that our savings need to increase as income rises and as the economy changes. The value of savings lying idle in bank accounts depletes as the value of money depreciates. Developing a savings culture is the most important thing you can do for yourself, and counters the depreciating value of money while being prepared for contingency expenditure. Learning to survive on less money may be difficult initially, but it really does pay off in the future and can help you achieve financial security. Next is a look at how to grow your savings to help achieve your goals this year.
Pay out of your paycheck
Most people wait until the end of the month to save, which is a trend that leaves little or nothing to put aside. Financial experts advise prioritising saving on your budget list. A savings account should be treated like any other bill you pay with the only difference being that you’re paying your savings account instead of a creditor. The easiest way is to designate a particular amount of your paycheck to your savings account since that eliminates the temptation to spend the cash.
Making regular payments to your savings account only solves a small part of the problem. To grow your the account effectively, there is a need to restrict yourself from moving the funds to a checking account. Checking accounts create the temptation of making unplanned purchases using credit cards. Financial experts recommend assigning names to your savings account that remind you about why it is that you’re saving. It could be something as simple ‘new home fund’ or ‘college debt’. Such steps deter the account holder from making unplanned withdrawals, and subsequently spending.
Automate your savings account
Apart from keeping in touch with friends and family members, today mobile phones provide many other benefits. People who are still struggling to save can use such devices to stay in touch with their money. You just need to set up alerts on a mobile banking app to send notifications when your fund balance is low or when a deposit or an unusual activity takes place in your bank account.
Take advantage of ‘found money’
Discounts, money saved after using coupons or an annual bonus make up what’s known as ‘found money’. The funds may be channelled to a savings account if they are not part of your normal budget, and can often make all the difference when trying to grow your savings. Next time you get that bonus at work, rather than excitably planning what to spend it on transfer it straight into your savings account, and you’ll find yourself so much more motivated to save as you see the figure increase.
Once you pay off debt, budget as if the debt were in effect
When you’ve paid off a car, home or student loan, put the same amount that you’ve been paying into a savings account every month. Consider it as down payment for your next car or property. When it’s time to replace your old car, your savings will be sufficient to make a substantial deposit if not pay for the entire cost.
Take advantage of tax-deferred savings plans
Tax-deferred savings plans allow account holders to make extra savings from their paycheck for free. For example, imagine two employees earning $4000 a month, both take home $3000 after paying $1000 in taxes. If the first employee transfers $200 to his savings account, he leaves $2800 to spend. If the second employee enrols in a tax-deferred retirement savings plan, he saves $266 in savings before taxes; thus the taxman takes $933 from his income after saving an extra $66.67. Tax-deferred savings are beneficial if you are making long-term savings. You also earn interest on the extra cash over time, resulting in more money in the long-run.
Choosing a savings account
Most new savers open simple accounts like a bank savings account or a money market account, which are easy to operate and earn little interest in the long-run. Financial advisors who work in brokerage firms such as CMC Markets recommend choosing a savings account that matches your goals. If you’re making long-term savings, invest it for the long-haul at similar interest rates to reap the benefits. For example, if you’re confident you won’t spend the cash in the next year purchase a one-year Certificate of Deposit, which earns higher interest rates than conventional savings accounts.
Most account holders want to save and enjoy their money here and now but they need to understand that short-term spending can be very costly in the long-run, and can often be what’s standing between them and their saving goals. If you want to prioritise saving it means overlooking immediate consumption to save for future use. Additionally, savings are not just contingency measures since they help to prepare for retirement. The staggering number of seniors who approach old age without pension funds and the overwhelming number of people still with unpaid student debt should remind us to save for long-term goals, as well as short-term ones.