With so much talk about saving money, you can't deny the importance of a cash cushion. But saving money is easier said than done. You have regular expenses that take a chunk of your income. And it seems like unexpected costs always pop up. But while saving has its challenges, any effort is better than none. Here are seven insightful things you should know about saving money.
1. Your Account Isn't Going to Grow Itself
Okay, this might be a no-brainer. But the truth is, many people hope and wish for a bigger savings account, but they never put forth effort to save money. Whether you're looking to build a $1,000 emergency fund, or create a six-month emergency cushion, the first step to saving money is going to the bank and opening a savings account.
2. Compound Interest is Your Best Friend
Even if you don't have a lot to put into your savings account, compound interest helps maximize your savings. You earn interest on your money, and then you earn interest on your interest. Interest rates vary by financial institution and the type of savings account, so you need to compare your options and find accounts offering the highest yield.
3. It's Okay to Start Small
Money experts recommend paying yourself first and saving at least 10% of your income. However, you know your personal finances better than anyone else, if 10% is too much, it's okay to start small. You can begin saving 2% or 3% of your income, gradually increased to 5%, then work your way up to 10% as your income allows.
4. Set Goals
Saving money is challenging, you need to set goals for yourself. In other words, why are you saving – or what do you hope to accomplish by opening a savings account? Your goal might include saving for a house, retirement, a college education, a wedding or you might simply build a rainy day fund. With a goal in mind, it'll be easier to stay on the right path.
5. A Regular Savings Isn't Your Only Option
If you open a savings account, the bank might hook you up with a regular savings. This is a good start, but these savings accounts don't earn a lot of interest. You need to consider other options, such as a certificate of deposit or a money market account. These accounts earn higher rates than regular savings accounts, giving you power to maximize your earnings.
6. Use Automatic Options
If you can't get into a savings routine, talk to your bank about automatic savings options. For example, the bank might have a program where they round up debit card transactions to the nearest dollar and deposit the difference into your savings account. Or you might be able to set up repeated transfers from your checking to your savings on certain days of the month. And if your employer offers direct deposit, you might be able to split where your money goes. Some of your money can go into your checking, and some into your savings account.
7. It's Okay to Splurge
Saving money prepares you for unexpected cost, but it's okay to enjoy the fruits of your labor. There's a saying – save a little, spend a little. So if you've been doing good lately, don't feel bad about splurging on a new pair shoes, a handbag or any other item you're eyeing. Just don't go overboard and overspend.
The sooner you start saving, the sooner you can build a nice cash reserve. What savings tips can you offer?