We all want to save more and know it's an important habit to develop. According to the U.S. Bureau of Economic Analysis, recent uncertainty has pushed the savings rate up to a historic 33 percent this April. But since that's in response to economic conditions, it's not likely to be a lasting habit. To build saving habits that will last and provide an opportunity for financial freedom, read on.
Why Save Money?
Saving money takes discipline and some sacrifice. It's tough to build saving habits, or any habit for that matter if you don't understand why you're putting all that effort in. You might think about the best way to save money fast. However, it's not the answer. Think of what reasons to save money there are for you, and here are a few reasons to think why save money below.
Reasons to Save Money
Financial Freedom. Whether you're saving for a new car, home, child's education, or retirement, you need money. Even if you don't have something that you need right now, there is something that will come up. These unpredictable lists are the reasons to save money. Additionally, it would be best if you had money set aside to handle emergencies or unexpected expenses.
Security. Having money will make your life easier because you have the peace of mind knowing that you have the cash to fall back on if your car breaks down or loses your job.
It can take calculated risks. Have you wanted to quit your job and start your business? Building cash reserves can provide the chance to temporarily lower your income as you explore and get your passion off the ground.
Saving Habits to Build
If you want to know how to start saving money, you must understand that you need to build a habit of savings and don't start with a goal that's too high. You can get discouraged and then give up. Consistency and discipline are the keys. For example, if you want to save up for a house, don't try to make yourself save so much of the monthly income that you can't enjoy the activities that you like. Be realistic and allow flexibility so that you are saving a good amount and getting to enjoy going out to the movies once in a while.
How to Start Saving Money
If you need a few saving ideas to help you build the habit, here are three that you can try:
Spend less than you make consistently. It doesn't matter how much you make; a savings habit requires you to let go of the spending mindset. Figure out what you're spending your money on then reduce those expenditures. A budget is the best way to save money fast because it is an accurate representation of your spending habits and where to start cutting.
Save something every day. A habit is built on repeating a new pattern regularly. Make money-saving decisions every day so that you're thinking about saving constantly. It could be as simple as making your coffee at home or bringing your lunch to work instead of going out.
Set up automatic transfers. Have a portion of paychecks automatically transferred into a savings account. You're not as likely to miss that amount when you don't have it sitting in your account.
See your savings grow. Staying focused on your goal becomes a resilient habit when you see your work in action. Look at your savings account to see your money accumulate, encouraging you to continue your savings habits. Once you can reach your short term financial goals, you will get motivated by saving more.
Where to Put Your Savings
Now you have some saving ideas, but you might be thinking about where to put it? It will be easier to reach your long term and short term financial goals if you put your savings in a different account. There are a lot of options out there that you can choose from. Here are a few different types that might work for you.
Regular Savings Accounts
These types of accounts usually don't allow any check-writing, and the interest rates are the lowest. Some online banks have higher rates on their regular savings accounts than what you find with a bank.
High-Yield Savings Account
There is a higher initial deposit and limited account access to most high-yield savings accounts. The incentive is that you earn a higher interest rate than a regular savings account.
Certificate of Deposit
CDs offer higher interest rates than typically any type of savings account. You promise to allow the bank or credit union to hold a certain amount for a specified amount of time. If you break that time period, you're penalized part of the interest accrued.
Money Market Funds
A type of mutual fund that invests in low-risk securities, returns are similar to short-term interest rates. There is no guarantee on interest rates, so research is needed to find one with a good track record.
About the Author
Anjana Paul is a banking professional who is passionate about helping others make better choices when it comes to money. In her spare time she is a freelance writer with years of expertise in the financial industry. She primarily writes about topics such as student loans, building credit, budgeting, retirement and other personal finance topics.