What Is Savings?
Savings refer to money you put aside for future use rather than spending it immediately. In addition to the benefits of saving up for future purchases, delaying an impulse purchase also helps you decide whether it is something you really need, or a waste of money you will regret shortly after buying.
Benefits of Savings Versus Credit
It can be very tempting to purchase something you want today using credit rather than saving up for it and paying cash for it in the future. After all, who prefers delayed gratification when you can have it now? However, when you use credit, you add to the cost of the purchase because of the interest you have to pay on the loan. When you save so that you can pay for purchases without borrowing money, no only will you not pay interest, but you also earn a little interest as the money sits in a bank account waiting to be used.
One of the most important things to save for is unexpected financial emergencies. These can include losing your job, unexpected health issues or your car or other home appliances breaking down, so you should have between three and six months worth of living expenses set aside. If you don't have an emergency fund, you may end up having to take out a short-term, high interest loan or carry a balance on a credit card at a high interest rate.
Where to Save Your Money
For short-term savings, you usually want to put your money somewhere safe and any interest you earn on it is just icing on the cake. Deposit accounts, like savings accounts, checking accounts certificates of deposit and money market deposit accounts at banks are covered by the Federal Deposit Insurance Corporation, which means that up to $250,000 is safe even if the bank goes out of business. If, however, you have a much longer-term goal, such as retirement, you might think about investing some of the money in something a little riskier, like the stock market, that can offer a higher rate of return, suggests CNN Money.
Setting Up Different Accounts
Using different accounts for different savings goals can help you stay on track. In addition, you may be able to set up automated savings, where your paycheck is automatically split into portions and deposited in different accounts. That way, you aren't tempted to spend the money that you've earmarked for savings. To help you keep track of your accounts, consider a software program like Quicken to make managing your financial life easier.