What Are The Benefits Of Opening Up A Savings Account?
Why You Should Open a Savings Account
When it comes to managing money, there is a lot to think about. We all have goals that we want to reach in life, so we try to figure out the best way to reach those goals. What moves do you make? Where do you invest your money? Should you even think about investing? How do you keep your money safe? How do you send your kids to college and make sure you leave something behind for them if something happens to you? How do you learn to manage your money better?
Do any of these questions sound familiar? They cross my mind quite often, and I am always searching for the best possible answers to them. If I have learned anything it’s that there is no one size fits all answer. What is best for me may not be best for you. However, there are some basic principles that we should all try to live by.
One of these principles is to save money, and the safest way to do that is through a savings account. While other investments may be a smart idea, we are going to discuss the benefits of opening up a savings account so you can fully understand your options.
The Benefits
Let’s see what are the main benefits of opening a savings account and how the basic money management principles, that we will discuss later in this article, work with it.
Set Savings on Autopilot
Unless you are extremely disciplined, it may be difficult to consciously put money away. You get your paycheck, pay your bills, and purchase your necessary items. If there is anything left, you might be tempted to spend it on something else. You might suddenly decide that you “need” some new clothes or that you “should” pay that extra on debt. There is nothing at all wrong with purchasing clothing or paying debt, but doing so on a whim can lead to trouble- especially when you do not have any savings put away.
“Out of Sight, Out of Mind”
Instead, when you have a savings account, you can have a portion of your paycheck go to it before you even notice it is there. Out of sight, out of mind, right? Of course, if trouble strikes and you really need to access your money, you know it is there. Setting your savings on autopilot is basically like removing temptation before it has the chance to tempt you.
This is why you make a budget of things you have to pay and what you need to buy. Everyone needs to buy clothing at some point, so adding that to your budget is fine. Perhaps you know that when school is about to start, you spend $300 on your kids’ clothing. Divide that amount by how many paychecks you will receive between now and then. Add that amount to your budget as “Savings for Clothes”.
Then, when it is time to purchase clothes, you take the money you have saved and go shopping. Doing things with a budget and setting savings on autopilot means that you are not scrambling to come up with the money you need because you already put it away.
When you finish reading this article, you will probably realize how good opening a savings account could be for you. If this is the case, here are some suggestions for you:
Set Bill Paying on Autopilot
If setting savings up on autopilot is not enough, how about setting your bills on autopilot, too? Having saving and bill paying set up on autopilot are two of my favorite benefits of opening up a savings account. Imagine having all of your bill money automatically transfer into your savings, and then your bills automatically taking it out on the due date. I do not know about you, but anything I can do to make my life simpler is worth looking into.
Use It to Reach Your Goals
Another one of the benefits of opening up a savings account is that it is very easy to set a financial goal and use a savings account to reach it. If you want to go on vacation and need to put away $2,000, you can determine how much you need to save per check and have that amount go directly to your savings. Without having to think about it too much, you can have everything you need saved and separate from your bill money.
Possibility of Multiple Accounts for Multiple Goals
What if you have multiple goals, though? Well, you can have multiple savings accounts. You can do this through different banks if you want, but you do not have to. With my bank and quite a few others, you can actually set up multiple savings accounts. They are not actually separate accounts, though, so much as they are different "pockets" of one account, so to speak.
What I mean is that they are almost like buckets. Each one is named for a different goal, such as a go on vacation, buy a house, save for a new car, and so on. They are all under the same savings account number, but I can have the money split between each of them so that my goals stay separate. This is an excellent way to save for multiple goals with ease.
This means that you can use your savings to create your emergency fund as well as all of the other goals you hope to reach. After making your budget, you can determine how much money you need to put towards each goal. Then, set up automatic transfers to put that money into your separate savings accounts.
Easy Access
One of the benefits of opening up a savings account in the modern world is how easy it is to access your savings. When I was a kid, I had a savings account at the credit union my family banked at. It was not a big one, but I would save up change that I would find, roll it, and then deposit it. I did not realize that if I wanted the money back, I would have to wait for it.
Back then, you had to physically walk into a bank or go to the bank’s drive-thru to withdraw money. If it was nighttime or the weekend, you were just out of luck. What this meant for me is that I could not buy any toys on a whim. I had to plan it and wait until we could go to the bank to get my money.
At that time, there were no debit cards and definitely no online banking. I know that any young people reading this will think I am an old lady, but the ease of today’s banking really has not been around that long.
Online Banking
Fortunately- and unfortunately, at times- we live in a different world now. Convenience is everything to everyone, so it’s no surprise that banks hopped on the bandwagon to keep up. If you want access to the money in your savings account now, you can just log on to your bank’s app or website and press a few buttons to transfer it to your checking account.
Emergency Fund Is Really Ready for Dealing with Emergencies
This is one of the major benefits of opening up a savings account. Having an emergency fund does no good if you cannot get to it. Let’s say you break down and need to get your car towed. If your emergency fund is locked up in investments, you might be leaving your car on the side of the road for a couple of days- or longer. With a savings account, though, you can get to it immediately. The same goes for any other goals you are saving for.
Easier than Accessing Investments
Most stocks are not so easy to withdraw money from. Though some investments do come with check-writing abilities, not all do. And those that do often charge a fee for using your own money. With others, you have to wait until the investment matures or until someone buys the stock. In short, the money in your investments is not as easily accessible as is the money in a savings account.
No Risk
When you put your money into traditional investment accounts, such as stocks, you are assuming a certain level of risk. You may never lose any of your money, but that is not guaranteed. In fact, you could lose all of it. This is not to scare you away from investing. I am simply stating the facts.
FDIC Insured
Savings accounts, on the other hand, are quite different. They are FDIC insured. This means that if something goes wrong with your bank and they suddenly shut down, you still get your money back. Your money is safe because you are taking no risk.
Earn Money on Your Money
One more of the benefits of opening up a savings account is that you can actually earn money from it. Granted, it is smaller than most investment accounts, but you are still earning. Again, this is not always true with stocks- you might earn or you might lose. You never know.
If you want to invest in stock, there is nothing wrong with that. In fact, investments can be one of your streams of income. However, you need to be wise in your choices and it should not be your only stream of income. You might consider splitting your money between a savings account and the stock market. Personally,
I would put most of my money into a savings account and a much smaller portion into the stock market. How you do it is up to you- just be sure you consider it carefully.
Easy to Open
Most investments require that you open with a large initial investment. Sometimes, this investment is up in the thousands. Savings accounts, on the other hand, require little to no initial investment. I believe that my last savings account required a $25 deposit. Some, like many online banks, do not require a deposit at all.
Managing Money
Now after we went over the main benefits of opening up a savings account, let’s discuss some basic principles to follow if you want to learn how to be better with money. These principles can help you better understand the benefits of opening up a savings account and just how it can positively impact your life.
Have a Budget
A budget is a way of telling your money where to go, and it is one of the most important financial management tools you can have. Your budget should include all necessities and any savings or investing that you hope to do. You can also add in any splurges or big purchases, such as a down payment for a new car. You then split your income between these items.
Remove Unnecessary Items
Before you do anything else, take a good look at your budget and your spending. Does everything in your budget either have to be done or line up with a goal or priority? If not, take it out now.
Obviously, I can not tell you exactly what to take out because our priorities, goals, and bills will be different. I can give you some examples, though, of what I choose to leave in the budget and take out of the budget. I homeschool my children, so I budget in things like field trips, science project items, reading subscriptions, and so on. Another parent that sends their kids to public school probably does not have a need for those items.
Also, I leave out fast food for the most part. I cook a lot at home because it is something I love to do and it is a great way to save money. Still, I’ll budget for pizza or date night because those nights are a priority, too. The bottom line is that you need to set your priorities, and then make sure your spending and saving lines up with those priorities, goals, and necessities. This alone is an excellent money management strategy, and it can free up some extra cash for you to save or invest.
Have an Emergency Fund
There is not a single adult in this world that can say that they have not faced an unexpected situation. It happens to everyone. You cannot avoid it but you can be prepared by having some emergency funds put away. Another of the many benefits of opening up a savings account is that you can use it to sock money away for those rainy days.
Save for Other Expenses and Goals
We all want to retire one day, but that will not happen if you do not save for it. Other goals, like buying a home, going on vacations, and things like that require some amount of saving- unless you make thousands of dollars per month more than your bills.
Find Ways to Grow Your Money
You want your money to work for you instead of the other way around. Investments are a great way to do this, though you need to educate yourself and possibly hire a financial advisor to help you make good investments.
Multiple Streams of Income
You literally never know what will happen from day to day, which is why it is important to have more than one income source to rely on. This is not just my opinion. It is actually popular advice:
Never depend on a single income, says Warren Buffet
Here I listed just a few references on this topic, and as you can see, it isn’t new advice. It is, however, a tried and true method, so we would all be wise to follow it, as the author Robert G. Allen said:
In today’s uncertain economy, the safest solution to be wealthy, be in total control and enjoy freedom for you and your family is to have multiple streams of income.
Conclusion
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Insanely Simple Money Management
A savings account is something that everyone should have and use. I hope that this list of benefits of opening up a savings account has helped you. If it has not, though, how about a little challenge? Why don’t you give it a shot anyway? You can always close it if it does not work for you.
Open a savings account and have a portion of your income go straight to your savings account on payday. You can walk into traditional brick and mortar banks to open one if you choose, but you can do it in minutes online.
Look for an account that lets you set up separate goals, and then try sending an amount to each goal from each paycheck. Six months or a year from now, take a look to see just how far your savings account has helped you in reaching your goals.