You might have wondered just why you should save your money. If you have what you need, why bother with setting some aside every month? There are quite a few reasons you should be saving money. Different people want different things.
A savings account doesn’t necessarily need to only be for what you need – you might decide to use it for things you want, or want to do. For example, you might want to get married, but have you got enough to pay for one of the best engagement rings?
Saving up for larger purchases means you won’t have to finance them and won’t need to pay interest on them. You also might want to tuck money away for a new TV, a car, or even a vacation. The possibilities are endless.
Where you decide to save your money matters. It can actually pay you to save if you do it at the right bank. To earn interest on what you’re saving, do it with a CD (Certificate of Deposit), savings bond, money market account, or high-yield savings account. That way, when the interest rates go up, so will your yield.
That said, when interest rates go up, so do the rates on credit cards. That means that you must have money available for emergencies so that you don’t need to borrow to pay the bills.
Speaking of Emergencies
It’s imperative to always have an emergency fund you’ve saved to cover any unexpected expenses. Just think back to the height of the COVID-19 pandemic. How many people had to fall back on their emergency fund? What about all of the Americans who didn’t have one? Those people suffered greatly and may have even lost everything.
An emergency doesn’t need to be a pandemic either. It could be an illness, accident, or any number of issues that might pop up. If you don’t have a fund, make sure you start saving. Remember, the fund should have enough in it to cover a minimum of three months of your total expenses.
Ah, the Golden Years
One more thing you might want to save for is retirement. Just remember that the sooner you begin saving for your retirement, the more you’ll have when you’re no longer a part of the workforce. This type of saving generally happens within special sorts of accounts, like a 401(k) account. Money that’s invested into these types of accounts can grow because it earns interest. If that interest gets compounded, it can grow much faster.
Home Sweet Home
You might want to own your own home. If so, you’ll need to save for a down payment. If you’re able to save as much as 20% of the price of the home, you’ll be able to avoid PMI (private mortgage insurance) and you’ll get lower interest rates on your mortgage loan. Saving also reduces the amount of money you’ll be borrowing, which makes the mortgage payments a bit more affordable. You’ll be able to figure out how much to set aside each month for a down payment based on your other goals for saving and your circumstances.
As you’re setting money aside each month for your various savings goals, don’t forget your children’s education. You might want to set up a 529 plan to save for their college tuition. These are attractive options because the money is allowed to grow sans taxes.
There are way too many things you could be saving for to list here. The point is, you should be saving. There’s always something to look forward to and most of those things take money. It’s best to have it on hand when you need it.