There are so many reasons that stop you from opening a savings account and frankly I don’t blame you. Trying to balance life’s many expenses is hard. Then there are the debts and credit cards you have to pay off. After everything, there’s usually not much left over for saving, that’s why you need a savings account. I will explain the reasons why is a good idea.
Sticking to a budget is tough. Most of the time you buy the stuff you don’t even need. The impulse to buy and trying to make yourself feel good adds up. You find yourself living paycheck to paycheck and even having to make extra just to make ends meet.
The danger with living like this is if anything unexpected happens you find yourself in a fix. Life happens, cars break down, houses need unexpected repairs, appliances break, and so many other unplanned expenses.
A few months ago, no one could have predicted a worldwide pandemic. Coronavirus affected our lives in so many ways. The pandemic left many people unemployed with no savings. If there is anything we can learn from this, it is the importance of saving.
Why Is Saving Important?
I’m sure you will agree with me that living your best life is a goal worth working towards. Which is why saving should be top on your priority list. Saving can help keep you debt-free and protects you in case of an emergency. With good savings, you can have more job flexibility. It sucks being stuck on a job you don’t like because you have nothing to fall back on. Putting something in the bank will help you to reduce stress and give you more freedom.
What Options Do You Have For Saving?
There are so many ways you can save money. By adjusting your spending, setting saving goals, or creating a budget. But we all know just how difficult it is to save your money when you have access to it. Everywhere you look someone is advertising something and it’s so hard to resist temptation. It’s easy to spend outside of your budget. Which is why a savings account will help you save.
How Do Savings Accounts Work?
You open a savings account and you deposit some money with the bank or credit union. You have the option to deposit some more money when you can. The bank will give you interest on your money.
Basically, the bank is paying you for letting them use your money to lend to other people. The longer you keep your money in there the more you earn. To top it off, they pay you for the money they gave you as interest, pretty neat right?. This is called compounding; you earn interest from interest.
The formula for calculating how much you make is:
Daily compounding = Principal (1 + interest rate/365)365 = (daily compounded amount)
That’s really complicated don’t you think. To make your life simpler you can use a savings calculator to see how much interest you can make on your money. Say for example you start your savings with $2,000 and you put 100 into your savings account every month for 20 years.
After 20 years you earn over $6,000 in interest
This calculator from Pigly This calculator will help investors determine how much interest they will earn based on a single deposit, a recurring set of deposits, or a combination of the two. In addition to calculating interest income, this calculator also provides estimates of income taxes due and the after-tax future value of a periodic investment in today’s dollars. If the investment is untaxed please set the tax rate to zero when calculating future value or use our basic savings calculator instead.
Why Do You Need A Savings Account?
There are plenty of reasons why you should put your money into a savings account.
Keep yourself in check
Will power and discipline are by far the hardest things to master in life. With a savings account you put your money in a place you can’t reach whenever you feel like it.
Most accounts will only allow you to withdraw after a certain amount of time. So if you are saving for a down payment, for example, you can put your money into the bank just so you won’t spend it. It’s so easy to just click and buy anything with a checking account. With a savings account, it will be much harder to complete purchases.
This will give you a chance to stop and think before you buy and hopefully stop you from completing the purchase.
You earn interest
Who doesn’t like to make money? A savings account is a good way to make money passively. You are paid interest for just having your money sit in the bank. Instead of keeping money that you are not using now in your checking account, use a savings account instead.
Different savings accounts give different rates of interest. This is why you should use a savings calculator to find out how much you’re going to earn on each savings account before you settle for an account.
You have a backup
It helps to have something saved in case the unexpected happens. With a savings account, you can be able to maintain your expenses even when your income is disrupted.
The United States economy is no stranger to recessions. A savings account will help you take care of your immediate needs when you have no money coming in.
It’s a safe bet
Savings accounts are protected by the Federal Deposit Insurance Corporation. The FDIC is an insurance that protects American depositors from bank failure.
This means if you deposit your money into a savings account you will get your money back if the bank collapses.
When a bank goes bust the FDIC works with the bank to make sure that depositors get their money. It will pay out itself in some cases.
You can get your money out when you need it.
Things don’t always go according to plan and you might need quick cash. Trying to sell off your bonds, stocks, or other assets may take too long and may not even work.
With a savings account, it will be easier to get your money faster.
Reduce your risk
If you are investing in the stock market it can be quite risky. To decrease the risk of losing all your money you should also consider a savings account as part of your investments.
You don’t need to know anything about finance or investment to open and operate a savings account. The opening process is straightforward. You don’t even have to know the math behind, you can simply enter a few key numbers into the savings calculator to find out how much you will earn after a specific period.
Organizes your savings
Trying to find time to organize your savings can be a headache. Reconciling how much money you have saved for the car down payment, vacation or your other financial goals may be impossible.
The simple solution is to open different savings accounts for each goal. That way you stay on top of things and you know exactly how much you have saved for each goal.
Good head start
It can be very stressful trying to think about retirement and financial independence when you spend every dollar you earn.
While a savings account may not be a way to get rich, it does give you a starting point. By putting your funds aside every month you can have a substantial amount at the end of the year. You can use the extra money to invest in other financial instruments.
It might not have a place on the red carpet for financial instruments, but the savings account is a star in its own right. Consider opening one and start your journey to financial freedom.