Having emergency funds to fall back on is essential because no one can predict the future and you need to be prepared for ‘rainy days’ ane emergencies.
We always hear people complain about not having enough funds to fall back on, and most people have to borrow to take care of unpredictable expenses that crop up. To avoid the expenses adding up, a savings account is your best – and most flexible – option.
What Exactly is a Savings Account?
This is probably the most popular type of bank account available and is usually the initial account most people have before opening other types of accounts. A savings account is a kind of account that allows you to save funds with your chosen bank and then receive interest from the money saved. In other words, the bank pays you to deposit funds with them, and accounts like this are insured against the bank’s failure.
Some banks have a minimum balance for savings accounts, while some banks have no least balance required at all. It is referred to as a savings account because when the money isn’t immediately on hand, you’re highly unlikely to spend the money unwisely. The FDIC and your bank ensure nothing happens to your money because it is covered by insurance up to $250,000.
Why You Might Need A Savings Account
If you’re wondering why you need a savings account and why you can’t merely use the money for something else like investing, here are some reasons why:
It’s Great for Emergencies
A savings account is supposed to have enough funds to take care of your living expenses for three months. With a savings account, you’re assured of a safety net when unexpected situations arrive, like a pandemic.
You’re Receiving Interest
Without using your money for anything, you’re still making money off it. Unlike investments that can go awry, nothing could go wrong with savings accounts. All that is required of you is to keep the money in the bank, and, with the most attractive accounts, you receive a certain percentage of interest on your balance.
You Have Control Over Expenses
This is the best part of a savings account; you can control your expenses, which you wouldn’t do if the money is saved in your standard checking account. Some banks offer you the option of a pre-programmed transfer that ensures a portion of your paycheck goes directly to your savings account, so you don’t get tempted to spend it immediately it enters. The excellent part is you can be proud of yourself when you achieve set saving goals.
Safety Is Assured
If you keep the money at home, a lot of things could go wrong with it. If you choose to invest the money, markets could crash, but you have nothing to worry about with a savings account. Any funds you keep in your savings account remains safe till you want to spend it. Your money is insured against bank failures or disasters of any kind.
Tips to Ensure An Account for Savings Work For You
Now that you know how a savings account can be beneficial for you, you need to figure out how to make it work, or you’ll find yourself with an empty savings account at the end of the year. provided are some tips on how to make this type of account work for you…
Fix Financial Goals
This is an integral part of opening a savings account; you need to have a reason why you’re opening the savings account, or else it becomes just another account to have. Set the financial goal you hope to achieve with this account. If you’re looking to buy a car, it will make more sense when you keep stacking up the cash.
If the idea is to save up for an investment portfolio, then every bit you save up counts.
See A Savings Account As ‘Paying Yourself’.
That’s right! When the paycheck comes in, you begin to pay bills and other expenses that won’t stop coming. The best way to make this account work for you is to settle yourself first. As the paycheck comes in, pay yourself first by putting in a specific sum of money into your savings. After this, you can then move on to pay up bills and take care of expenses. This ensures that the money doesn’t get used up taking care of costs, and you don’t also spend it on unnecessary stuff.
Add Savings to Your Budget.
Most people make the mistake of not adding a particular amount for savings to their budget. Instead, they create an account and choose only to save what’s left. The ideal course of action is to add it to the budget; this makes it real and essential. Let it be part of your monthly budget and prioritize it. Chances are if it’s not part of your budget, you probably won’t take it seriously.
Automate Your Savings
Several banks allow you to create an auto-deposit; you only have to utilize this resource. Fix up an auto-deposit by proving the date and amount you would like a specific sum of money to be moved from your salary account into the savings account. You can arrange this for the time your salary comes in or some days after you’re credited. This way, you are saved from any form of temptation that might come up.
Save Spare Cash
Spare cash could be gotten from any avenue; it could prop up because an expense is no longer needed or when a bill is reduced. Instead of splurging, direct that money into your savings account. You could even be in luck and get a return of your tax or even get a raise at work; send the extra cash to your savings.
It’s easy to spend extra cash on unnecessary expenses, use the opportunity, and build up your savings instead.
What’s the Takeaway?
Research has made it clear that when you have a specific sum of money in your savings, your finances’ status gets better.
It will create a better mindset for you when you know that you have cash stacked somewhere for rainy days; imagine how much more comfortable you can navigate through a crisis in the case of an emergency. Open a savings account today and apply these tips to make it work for you.