Why everyone needs a savings accountDate posted: 3/25/16 09:00:00 AM
Emergencies and unexpected costs can pop up any time. Even if you think it could never happen to you, it certainly can, and that's why you need to prepare for the worst by starting a savings account today.
No matter how secure you feel at your job, or how unlikely emergency care might seem to you right now, having a savings account with enough funds to support you during stressful times is critical for financial success, Bankrate noted.
"Much research has shown that families frequently are faced with unexpected expenses, ranging from a car repair to a medical bill to a traffic violation," said CFA Executive Director Stephen Brobeck, according to Bankrate. "Using a savings account is the easiest and least expensive way for many families, particularly those with few financial resources, to cover these expenses. Relying on a credit card, payday loan, or even friends or families are usually much less desirable options."
Connect with your bank
Your piggy bank should be a thing of the past. Head to your bank and determine what steps you need to take to open a savings account for emergency situations. It's also worthwhile to ask how you can automatically deposit money into the account to ensure you aren't tempted to spend anything intended for your savings funds.
Bankrate noted that having an employer automatically deposit some money into your savings account can increase the growth rate of your emergency funds. In addition, when you can't see the funds, you are less likely to spend frivolously.
"Most automatic deposit systems accommodate multiple accounts, so all you need to do is decide how much to put into savings each check, and you will never even see that money coming out," said Keith Klein, a CFP professional and principal at Turning Pointe Wealth Management, according to Bankrate. "Even dividing it three ways enables you to direct money to your bill-pay checking account, an amount for short-term savings and 10 percent to 20 percent into longer-term savings."
Set a goal
Figuring out how much money you want to tuck away can be helpful for several reasons. On one hand, it gives you a concrete number to work toward. As you get closer to your goal you can feel more confident having that money for when times get tough.
However, determining an actual dollar amount to strive for can varyper individual or family. According to Bankrate, you should have between 3 and 6 months worth of expenses tucked away for a rainy day, at a minimum. However, the more you save, the more at ease you will feel.
Save in other ways
While a savings account ensures you can withdraw money at a moment's notice, there are advantages to diversifying your savings strategy. Make sure you are aware of all other options available to you through your bank.
Money Choice suggested looking into certificates of deposit, commonly called CDs, for long-term saving goals with higher interest rates, or money market accounts, which pay interest based on the current money markets.
Save even when times are tough
When you need to tighten your belt, it is still important to continue saving some of your money. To ensure you can still put money away for emergencies, Bankrate suggested shopping smarter throughout the week. Before buying anything, try to find the product at a more affordable price. Comparison shopping can save you a great deal and leave you with more money you can put into your savings account.
Consider starting at the grocery store. Instead of purchasing brand name cereals, milks and other foods, look for generic as it is often the same quality, but far less expensive. You can then take the money you saved on these items and deposit it directly into your emergency fund.
Set an example
If you have children, it is even more critical to demonstrate the importance of having money available for unexpected expenses. Make a point to explain why you are saving money and encourage your children to do the same. If your kiddos already have an allowance, have them save a portion of it to practice this habit early on.
Consider setting a goal for your kids as well. For example, if one of your children wants to purchase a car when he or she turns 16, research the cost of different cars and encourage your child to work toward that specific amount.
Whether you have children or not, saving money is critical for everyone. By starting an account now and sticking to a plan, you can protect your financial future even when unexpected costs emerge.
Determine your goals, and open a savings account that best fits your situation.
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