Life brings unexpected turns, so being in a good economic position makes those events easier to deal with. Whether it’s a short-term goal, as in something you may want to purchase, or a long-term goal, as in your future retirement, it is important to start a savings plan to accomplish them.
In this guide, you will find tips on how to open a savings account, cut back on your expenses, learn how to best allocate your money and make sure you stay within your budget.
Open a Savings Account
There are various types of savings accounts that you can open. It is important to understand them to make an educated decision on where to store your money.
Related Article: How much money should I save?
To open these accounts, an initial deposit of money is required, along with the following standard information on a completed application form, which can be completed onsite or online:
- Full name
- Present address and telephone number
- Date of birth (must be 18 or older)
- Social Security Number
- Email address
Typically, savings accounts require a minimum initial deposit of $25 to open. Also, some banks charge a monthly fee if you fail to maintain the minimum agreed-upon balance in your account.
Different Kinds of Savings Accounts
- Regular savings – These accounts are similar to checking accounts, but don’t provide a check-writing ability. The most popular account available in most banks, a regular savings account is designed to provide a holding place for additional finances that could be easily obtained should the need arise. These accounts generally have low-interest rates, so you may seek a more powerful money-making type of account if you have more money already saved.
- Automatic savings – These plans are designed for individuals who may have difficulty depositing money into their savings plans on a regular basis. Automatic savings accounts transfer a pre-determined amount of money automatically on a certain date of the month from one’s checking account into the savings.
- Money market accounts – These accounts, insured by the FDIC, are basically without risk. They are known to provide a significantly higher rate of return than regular savings accounts. The trade-off for the higher interest rate is that they require a higher minimum balance be kept, usually somewhere between $100 and $2,500, and limit the number of withdrawals you can make in a given month.
- Certificates of deposit accounts (CDs) – These savings accounts allow individuals to receive interest payments periodically as the account moves toward its maturity date. The maturity date of CDs usually range between a month and five years, with the higher interest rates paid to longer terms. Penalty charges are generally applied when money is removed before the CD reaches its maturity. CDs are available in most FDIC insured banks.
Prune Your Expenses
Here are a few ways to cut back on your expenses and help you save money:
- Energy savings at home – Save money by reducing your light bill. This includes turning off lights when you are not in the room, lowering the temperature of your water heater, switching to more efficient light bulbs and regularly replacing your air conditioner’s filter. Avoid wasting power in your home to make significant monthly savings.
- Service your vehicle – Regular vehicle servicing, including tune-ups and oil changes, tire care and even good driving habits such as not speeding, result in saving money in the long run. Avoiding unnecessary car repairs is key.
- Save at the grocery store – If you shop once or twice a week, you are more likely to buy more efficiently. Taking a list and sticking to it is important, as this prevents impulsive buying. Seasonal shopping is also recommended, as fruits and vegetables are always cheaper when in season. Coupons are a great source of savings. The time spent digging coupons out of the newspaper or online sites can result in significant savings.
- Other ways to prune your expenses – If you look at where and when you spend your money, you can do a variety of things to cut down on your expenses. If you drive to work, find someone to carpool with. If you go out for lunch each day or order in, bring a bag lunch more often. Reduce your cable bill and sell items you don’t use.
Allocate Your Money
Here are some tips to help you prioritize how to spend your money:
- Goals – Begin by asking yourself what your immediate financial goals are and what your long-term financial goals are. This is the motivation needed to save money and give yourself the best chance to succeed in accomplishing these goals.
- Living Expenses – Allocate money to the necessary components and functions of your everyday life, like rent, transportation, food and health insurance.
- Debt – Establish the total of how much you owe and how much your minimum payments are. Any amount paid to your credit cards beyond the minimum payment is an amount that comes off the principal or the actual amount that is owed.
Once you’ve established your goals, determined your monthly expenses and calculated your debt, allocate how much monthly income will go toward making these payments. Subtract your expenses from your income to find out how much money you have left over after each month’s paycheck. Use this number to determine if more funds can go toward paying off debt or how much can be placed in a savings account.
Related Article: Creating a Budget
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