Ah, savings – the rare and elusive beast that we hear about in fairy tales. About a third of American adults have $1,000 or less in savings. Almost half don’t have enough savings to cover a $400 emergency. Yes, for most people, savings is the stuff of fairy stories.
Sure, most people want to save money, but they just don’t know where to start, or they just want to enjoy life.
If you want to take steps towards financial security, you need to understand what savings is, the benefits of it and how to get started.
What is it?
Savings is money you put aside for future use. Most people put their savings in a separate bank account. Some stuff cash under the mattress or in a safe. No matter your method, your savings is money that you aren’t going to touch until you need it.
Savings can be used for:
- A home down payment
- A new car
- Appliances, electronics or other household items
- An emergency fund (more on that soon)
You can use your savings for whatever you want. If you want the newest iPhone but don’t want to pay for it with a credit card, you can use your savings to buy it.
Just keep in mind that in order to save, your expenses need to be less than your income. You can use budgeting apps or expense trackers to figure out how much you’re spending each month.
What are the Benefits of Savings?
The most obvious benefit of having savings is financial security. If your car breaks down, you have money set aside that you can use. If you want to go back to school, you can pay for it (or at least part of it). Dreaming of a trip to Bali? Save up and enjoy the trip of a lifetime. Saving up for a purchase also means that you don’t need to use a credit card, which will save you money on interest.
How to Start Saving
If you’re new to the concept of savings, you may not know where to start. First, you need to determine your income and expenses. This will tell you how much money you have left at the end of the month.
Next, start saving. Here are some traditional ways to start saving money:
- Open a savings account: The best way to start and keep your savings is to open a separate account. This way, you’re not tempted to spend that money, and you can easily keep track of your savings.
- Use auto deposit: Set up auto deposits to your savings account with every paycheck to make sure that your savings is a priority.
- Set reminders: If you can’t use auto deposit, set a reminder on your phone every week or two weeks (whenever you get paid) to transfer money to your savings account.
- Cut back on expenses: To reach your savings goals, you may need to reduce your expenses. Find ways to reduce your costs or get rid of expenses that you don’t really need.