Savings: First Step to Success
Savings is the action of setting aside. In the financial world, you set aside certain amount of your funds. The idea to save means that you have for the future, for whatever plan you may have.
How do you open a savings account?
In the old days, people visited their financial institutions and filled paperwork with personal information, and deposited money, usually $100 to start their savings account. Today, we do not need to visit any financial institution, you just fill out a web form, transfer your funds and most likely you have set up a savings account.
Why do I need a savings account?
Saved money served various purposes on your life. It can provide you with an emergency fund in case of something unexpected arise. You may save for a trip, or a business investment, a home purchase, among others. In addition, you can use a savings account to teach your children how to save.
How much should I set aside for savings?
Having a savings account represent a personal decision; however, I will recommend to start with about 5% of your take home money. Then as you feel comfortable, you can increase up to 15% if your personal financial situation allows it. Remember, start with a small amount and then work your way up. Even if 5% is too much, you can use a exact amount; for example, $20 of every paycheck or $30 or $50, it depends on your personal financial situation.
What are the benefits of having a savings account?
These benefits make saving accounts very attractive:
- easy to setup – few documents or information to setup
- accessible – you can connect thru the web to your savings.
- debit cards – several financial institutions allow the use of debit cards in case you need money.
- interest – you earn a variable interest, currently low but still interest.
- FDIC insured – up to $250,000 insured by the FDIC.
Disadvantages:
- low variable interest
- monthly service charge (might be waived)
Alternatives to Savings Accounts
There are several alternatives to savings accounts; thus, you need to realize that higher risks, maintenance fees, possible higher interest earnings or losses might be possible. Examples of those alternatives:
- Certificates of deposit
- Money market funds
- Investment accounts
Conclusion:
Savings accounts represent a very good way to start your personal financial plan. You can save for your short and medium plans, teach your kids about saving and other ideas. More information may be accessed thru your financial institution. Remember to read your financial institution policies and savings requirements.
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