Saving the money you earn is one way of properly preparing for the future. But, a lot of the times, saving your money doesn’t mean stashing it away. There is a strategy that you must use to get the most of the money you are saving. Here are some common mistakes – that even the best of savers make – and some tips to efficiently handle your savings; learn from these and make sure you apply them to your practice.
Leaving “Savings” in the Checking Account
Many people make plans to save but don’t use the right strategy on where to put their money. One of the biggest mistakes is leaving your savings in your checking account. This is not a good practice for a few reasons. One it enables you to make a spending decision in the heat of the moment which you wouldn’t if the money wasn’t so easily accessible. Another reason why you want to put as much money in your savings account (instead of leaving in the checking) is to capitalize on the interest banks offer. Now, it’s granted that banks don’t offer great rates (usually ranging only between .01-.03%) but it’s better than collecting nothing.
You should also understand that aside from the basic savings account, banks also offer Money Market accounts that give you much better rates (up to 1%). But, there are certain restrictions about withdrawals that might not suit you if you transfer money from savings to checking frequently. But, if you want to place your money and watch it grow while you wait to retire, then learn more about Money Market accounts. Compounding interests, when the rates are good, are a great way to create some cash in long runs.
All Your Savings Going Into One Pot
Many times, people rely on 401K or investment stocks for their saving. And while these are great options, simply relying on these can have negative results because of the volatility in the market and big chunks of your savings can very easily be lost. Therefore, it’s best to diversify your savings to reap the benefits of high interests from different sources, and doing so safely. Also, the banks (with FDIC protection) only protect $250,000 ($500,000) of the amount in your savings account in case they go bankrupt. Yes, this is quite a rare occurrence but it’s best to be safe than sorry. Plus, having different savings accounts will take will allow you to take your mind off of the money and thus you will less likely face temptation to withdraw.
Saving Big Chunks, Whenever You Can; Prioritize Your Savings
If saving for the future is your plan, then you must take certain steps to help you accumulate towards it. A lot of people decide to save whatever is left from the pay, when in reality, the right approach is to save first, and then spend out of what is left. An easy way to handle this is to allow for 10-15% of your paycheck to direct deposit (manually if your employer doesn’t offer this) into your account. 10% of your paycheck will not put a drastic dent in your spending attitude yet the savings over the years will accumulate to higher heights than you would have expected. Then, you should continue to deposit more if there is any amount that is left off of the 90%. Also, it is a good practice to save the money you get as gifts, bonuses, and tax returns and only splurging with them sparingly.
Tapping into Your Savings Account
The purpose of having a savings account is to help you ensure a safe future; both towards retirement and towards emergencies, and of course for needs like college tuitions, cars, homes, etc. But, there is no point of taking out money from your 401K (or your savings account) before you retire just because you can or for events that are nonemergency. Plus, it is simply best to leave all retirement accounts alone until you retire to get the best use out of them. There are severely drastic fees for doing this so keep this below your last option if you can.
In conclusion, It is never too late to begin saving and applying these methods to your practice will help you even more. In fact, saving is a practice that should start at a very young age and this idea should be more preached. Learn more about different rates banks offer before settling for a convenient option; there many banks online and some less popular ones (than the ones you see commercials for) that may offer you better rates. The unpredictability of life allows random financial emergencies to emerge with no warnings and therefore it is best to be in a predicament where you can afford to handle them on your own.