Maximize Your Savings
One big lesson that the world learned from the Covid19 pandemic is the need to have savings. When some people did not receive any income due to being laid off, on furlough from work, falling ill or caring for a loved one, they couldn’t meet their living expenses and their debt obligations. Like many others, they had grown accustomed to living from paycheck to paycheck, never realizing they were open to financial risks until the lockdown brought this crucial revelation to the forefront. Now more than ever, everyone must understand the vital need to prioritize saving.
Why it is important to save
If you earn a good salary and manage to pay for everything that you need, you may be wondering why you should save. Now, if illness or disability interferes with your ability to work or if you lose your job, can your household live comfortably for at least six months? A 2019 Bankrate survey found that only 18% of Americans can live off their savings for six months and about 40% would need to borrow to cover a $1,000 emergency. Are you one of the 18%? Maybe, maybe not. Here is why it is important to save.
Having plenty of money in savings and investments:
- Protects you when you have a financial emergency, as when you lose your job, or you have unforeseen expenses such as medical bills, car repairs, or house repairs.
- Enables you to pay for large purchases like a car or a house with little to no debt, or on better terms. If you raise 20% on a home, you will get better interest rates on your mortgage loan and avoid years of Private Mortgage Insurance (PMI) payments (which insures the lender vs you). If you can’t raise the 20%, you can access government-backed programs like the Department of Agriculture, Federal Housing Authority, or Department of Veteran Affairs loans which accept a lower down payment.
- Gives you peace of mind and a sense of financial freedom, knowing that you have backup funds available.
- Gives you long-term security, enabling you to weather any financial storms and to live comfortably after retirement.
- Enables you to leave a legacy for your family should you meet an untimely death.
- Gives you the freedom to quit a job that you hate in order to pursue a career that you love.
- Gives you the much-needed confidence to leave an abusive or unhealthy relationship.
- Helps you to pay for your children’s college education so that they can start their working lives with less or no student debt.
- Enables you to take calculated risks like starting a business, knowing that you have something to fall back on if things don’t work out.
- Enables you to go on vacation, or fund milestones in life such as wedding expenses, having a child, or special celebrations, etc.
How to save money
Saving takes discipline and a level of sacrifice but it can be done. Use your net family income to determine how much you can save every month, and make that amount your monthly goal.
- Create a budget that meets all your household expenses. If there is no money to save, look again at your household expenses. Which variable expenses can you reduce or eliminate? Reduce here and there until you can save some money.
- If you get a large unexpected income, such as income tax returns or a bonus, save it.
- Accumulate loose change in a piggy bank, and then deposit it in the bank when the piggy bank is full.
- Buy off-brand items to save money. If desired, buy classic designer clothes at discount retailer outlets or second-hand stores for very low prices.
- Stop going to the movies every week, and join Netflix. Put the money saved in your savings account.
- Save up to $1,000 per year by taking your lunch to work.
- Shop around and compare prices before purchasing any major item.
- Instead of buying a car that will bring gasoline, insurance, repairs, and maintenance expenses, use public transport to go around. Use uber when you are in a hurry.
- Use coupons to save on grocery items and find deals on sites like Groupon
- When possible, buy items in bulk and save.
5 Highest Yield Accounts
It is wise to start with a standard savings account which you can access several times during the month, however, they offer very low interest rates. Then consider the following ways to maximize interest received with a low risk of losing your deposit.
High yield savings account
A high yield savings account pays a higher interest rate than a standard savings account because it requires a larger initial deposit and limits access to the savings. Many banks offer these, so shop around for the best high-yield savings account. Your money will also be protected by the FDIC up to $250,000.per account.
Certificates of deposit / CD Ladders
Certificates of deposit, CDs, are available at most banks and credit unions, and offer premium interest rates in exchange for holding your funds for a set period of time. They require a lump sum deposit and offer better interest rates than a savings or money market account. The interest rate depends on the maturity date which ranges from 6 months to 5 years. The longer the term, the higher the interest rate. Before maturity, you cannot touch the money, but if you really need it you will pay a penalty. CDs are also FDIC-insured.
A CD Ladder is a savings strategy that involves investing equal amounts into CDs with different maturity dates, usually one year apart, and then reinvesting the funds into a longer term as they mature. This may make sense for those who want to maximize returns, minimize risk, with cash constantly cycling out to take advantage of increasing rates.
Money market fund
The money market account is available at most banks, mutual funds, and brokerage firms. It is a mutual fund that invests only in low-risk securities so it is low risk. It is similar to a savings account but pays a higher interest rate. It is not FDIC-insured but is regulated by the Securities and Exchange Commission (SEC).
Money market deposit account
The money market deposit account is available at most banks. It requires a minimum initial deposit, a limited number of monthly transactions, and a minimum balance. You may pay penalties if you fail to maintain the minimum balance or if you exceed the maximum number of transactions. The interest rate is generally lower than the CD but your money is more accessible. This account is FDIC-insured.
Exchange traded funds
An exchange traded fund (ETF) is a good investment option. It is a basket of securities such as stocks, commodities, bonds or a mixture of investment types. It is similar to mutual funds but it is listed on exchanges and it is traded throughout the day. You save on management fees since the ETF is passively managed and you save on taxes because the ETF only incurs capital gains if you sell it.
There are several ways to maximize your savings.
Put money into your savings before you spend it on your monthly expenses. The best way is to use your online banking tools to set up auto deposits from your checking account into each savings/investment account. If you employer offers direct deposit, you can also have funds directly deposited into your savings accounts.
Join a 401(k) retirement plan at work. The money is automatically deducted from your pay and matched by the employer, and both contributions are paid to the fund. The employer’s contribution is a huge benefit that you must take advantage of since you receive a 100% return with no risk up to the percentage matched.
Pay high-interest debts first
If you are going to save money, begin by saving on interest. The best way is to pay high-interest debts first to reduce the interest paid, then eventually eliminate all debt.
Mission and Values
Many people are struggling to manage their personal finances and this often leads to affecting their credit as well. There are many ways to spend money, however, there are just as many ways to make money as well; but only if you’re aware of them. Our mission is to increase financial literacy while creating opportunities for financial growth. Whether you are looking to develop a solid budget plan, improve your credit profile or maximize your income, we offer resources and information to meet you where you are, and help you get to where you want to be. As a premier financial hub, we are dedicated to helping our subscribers spend less time worrying about how to fund their financial goals, and more time achieving them.