On a normal weekend, you do your regular chores: check on the garden, cook meals for the week, mow the lawn and play with your kids. By Sunday night, your back is killing you. By Monday morning, you’re in so much pain you can’t get out of bed, let alone go to work. Your run-of-the-mill weekend stressed your back so much that you need medical care and several days off. You have no idea how you’re going to keep up with your bills – you’re out of sick time and you don’t have extra money to spare. This is exactly the sort of unexpected medical problem that a savings account could solve.
4 Reasons to Contribute to a Savings Fund
Money definitely won’t solve all of your problems, but the padding that a savings account can give you will certainly solve some of them. Here are four reasons to save money:
- You’ll have peace of mind: If you’ve ever laid in bed at night, unable to sleep because you’re stressed about upcoming bills, you know what even a little extra money can do for your peace of mind. Even if you don’t dip into your savings account for monthly bills, simply knowing it’s there as a backup will ease your stress.
- You’ll have options: While you may not touch your savings for several months or years, it does give you options should you want to make a major life change. If your job is impacting your health and you want to quit, having several months of expenses saved can give you the flexibility to do that. If your neighborhood is becoming unsafe, you can start looking for a new apartment or house somewhere else.
- You’ll save more (and more): The more money you save and the more frequently you save, the easier it is to continue saving. You’ll see your savings build up, which will encourage you to save even more. It will also become a habit instead of something you force yourself to do.
- Your money can work for you: By carefully choosing the accounts where you put your money, you can earn as your money sits. Some regular bank savings accounts let you earn interest on the money in your account. Specialty accounts, like a retirement 401(k), will give you options for investing in stocks.
You may not have enough in savings to cover all of the many things that could cost money, but having that little extra wiggle room will give you more control over your circumstances.
Types of Savings Accounts
While you may think of a savings account as simply a place to keep the money you don’t plan on spending soon, there’s a lot more to them. Different accounts offer different perks, like gaining interest, stock investment opportunities and employer contributions. Here are a few types of savings accounts to consider opening:
- Bank Savings Account: This is the most basic type of savings account. It’s simply a place to hold your money away from your checking account. There may be limits to what you can withdrawal and requirements for how much needs to be deposited.
- Emergency Savings Fund: If you create an emergency savings account, a good starting goal is to save three months of expenses. If you’re injured and can’t work or if you lose your job, you’ll know your expenses are taken care of for at least a few weeks. From there, continue adding money to your emergency fund until you have six months or more of savings.
- Health Spending Account: If your employer offers a health spending account, you can deposit money (or it can be automatically deposited) before being taxed. Then, if you have to pay out-of-pocket for medical costs, you’ll be paying with tax-free money. You may also be able to earn interest on your money as it sits in the account.
- Retirement Savings Account: There are a few different types of retirement savings accounts, like a 401(k) or a Roth IRA. These accounts let you invest your money in the stock market as you save for retirement. According to the Investopedia link referenced above, you can earn up to 8% per year on average. Even better is that you won’t have to pay taxes on those extra earnings. Talk to your job’s HR department – some companies will match what you contribute up to a certain amount.
Spend some time comparing the different requirements and features of savings accounts. Your goal should be to differentiate the accounts you invest your money in.
Saving When You Don’t Have Extra Money
While saving is great for accumulating money, of course, it’s also good to get into the habit of saving. You may not have a lot of extra money right now, but even $5 per week is enough to make the act of saving a habit. As you earn more money, you’ll naturally start to put more away because you’re already in the habit of saving a little extra each week. You may also start to look for more ways to save as your growing savings account acts as a motivator.
Think about the different ways you can cut back on your current expenses to save a little extra each week. Are there any essential items that you can buy at a discounted rate by buying in bulk or switching brands? Are there any non-essentials you can live without or cut back on? Keep a spending journal for a month. Write down everything you spend money on and how much you spend, then go over it to see if there are ways to cut back.
When deciding which savings accounts are right for you, don’t hesitate to speak with a professional and ask questions. At your bank, a representative will be able to sit down with you to explain your options. If you’re taking advantage of an employer-sponsored savings plan, which can offer a lot of tax breaks, discuss your options with the HR department.