Top 11 Uses for a Savings Account: Wealth Wise Tips
It is a smart financial decision to open a savings account. I am sure you know the basic idea behind a savings account. After all, it says its purpose in its name - to save money. There are other benefits to opening and using a savings account that you probably have not considered.
Top 11 Tips for Using Your Savings Account
A savings account can be a great tool to help you realize your financial goals. It can be the first step in your journey to saving money. I am going to explain the many uses for a savings account in this article. Keep reading to find out more about setting goals and limits, as well as saving for retirement.
What Is A Savings Account?
Before we talk about the many different uses for a savings account, I want to give you a basic understanding of savings accounts. A savings account is an account where you put money when you plan to save it. This is not the same account from which you pay bills or spend money regularly. Savings accounts accrue interest so the money you have in the account can increase. Different banks offer different interest rates and other perks so you should research all banks before you select one.
If you haven’t opened your savings account yet, and you are thinking about that, maybe we can help you find the best savings account option for your finance status. Check out our suggestions down bellow:
Some banks are online-only, which means that there is no building for you to visit. You should be aware of your needs and understand how you wish to bank before selecting an online-only bank. These banks often offer higher-yielding accounts because they have less overhead. They do not have to pay the operational cost for an actual bank, so they pass those savings along to you. If you are someone that likes to see someone in person for assistance, an online bank may not be right for you.
Use #1 - A Place To Start Saving Money
One of the many uses for a savings account is that it gives you a place from which you can start saving money. I think we all can agree that starting anything new is difficult. The same is true when it comes to saving money. I would much rather have the money in my account to spend than to save it for some date in the future. I also enjoy the security that having money saved in the bank gives me. I learned to make some sacrifices now to have money saved later. A savings account is a good tool to help you understand how to handle money.
Have Your Money Directly Transferred to a Savings Account
One of the best ways to begin saving money is to have it sent automatically to a savings account with each paycheck. This way the money never goes to your checking account. It is never there for you to spend. Also, when you have it automatically deposit, you do not have to move the money yourself. It happens for you. You do not have to remember to do it.
Create a Budget
The best first step to knowing how much money you can save each month is to create a budget. A budget gives you a clear understanding of how much money you earn in income each month. It also shows you how much money you are spending on expenses each month. Once you create a column for each one, you add the income column together. Then you add the expenses column together. You subtract the expenses from the income.
If you have a positive number, you are in a good place to start saving money. If you have a negative number, that means you are spending more money each month than you earn. This is when you should start to look critically at your spending. We will talk more about that throughout this article.
Use #2 - Money Management
Another one of the great uses for a savings account is that it teaches you money management. While it is true that money management is exactly how it sounds - managing your money, there is more to it. It is you taking control of your finances, not just for today but for the future, also. It is about making choices about what you want to buy and when. It is not intended to be a form of medieval control. It is intended to allow you to understand the choices you are making about spending money and how it impacts your short and long term goals.
Many people think that budgeting and managing money means you are restricting yourself and saying you cannot buy things. That is not the full truth. What it is actually saying is, "do you want to buy that now" and "do you understand the impacts of that purchase"? It is your money and there is no one stopping you from spending it.
Keep Track of Your Spending
You should have a basic understanding of some key points to have a good grip on managing your money. You should track your expenses. You cannot know how much money you are spending or where, if you are not tracking it. You can keep an electronic log, or you can use one of the many apps or websites available to help you track expenses. Once you start doing it, it is simple to continue.
Make a Budget
You should also have a budget so you understand how your spending relates to the money you earn. For example, do you spend more than you earn? You can adjust your budget as you need it. It is not intended to be something you create and then it remains that way forever. It can change as your financial needs change.
Understand How to Use Your Money in the Best Way
When you learn to manage your money, you understand where to put your money so it does the most good for you. For example, is it better to completely empty your savings account to buy a new car? Or does it makes sense to take out a car loan and pay the loan from the money in your savings account? The money stays in the account longer and continues to accrue interest. However, you take on another debt instead of using the money you saved. Is that money specially intended to purchase a car, or do you need it for something else?
Being able to answer these questions helps you manage the money you have. You should ask yourself these questions before you spend money. If you are just spending money with no true understanding of where it is coming from, you are not managing it. If you would like to learn more details about money management, there are many money management articles that you can research and read.
Use #3 - High Yield Accounts
I think it is pretty obvious that one of the uses for a savings account is to actually save money. It is not only to save money but to watch it grow. The best way for you to do that is to find a savings account that is high yielding. This means one that has a higher interest rate.
Look for a Higher Interest
You should look for a savings account that has no fee or a minimum fee to open the account. Depending on the bank, they may require you to keep a certain amount of money in the account. Often, the higher the interest a bank gives you, the more money they want you to keep in the bank. Make sure when you are deciding on a bank that you read all the fine print. You should understand what the different banks can offer you.
Banks are Federal Deposit Insurance Corporation (FDIC) insured. This means that the Federal Government promises that if something happens to the bank, they will protect your money up to $100,000. It is really quite simple to give earning interest. You open a savings account and deposit the required amount of money. Interest accrues on the money that you leave in the account. The more you leave in the account for a longer amount of time means the more interest you earn. The money you gain from the interest is yours to keep.
The bank is basically borrowing the money you have in your savings account and you are letting them. You can take out the money anytime you wish, but while it is there, the bank loans that money out to others. The bank charges the borrowers’ interest for the money they allow others to borrow. The difference between what the bank charges others to borrow money and what they pay you in interest is profit for them. That is how the bank makes money. The bank pays you interest monthly, but it is typically compounded on a daily basis. This means that when your money accrues interest, you get more interest on top of that.
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Use #4 - Transfer Money
Another one of the great uses for a savings account is to use it to transfer money to other accounts. When you create the budget that I mentioned above, you know how much money you spend on bills per month. Creating a budget allows you to decide how much money you want to allow yourself to spend each month. All of the rest of your money, you can move to your savings account.
However, it is understandable that situations happen at random times that require you to spend money that you did not budget. When that happens, you can easily move money from your savings account to your checking account. If your checking account is at a different bank, you must make sure that bank account is linked to your savings account. You can also transfer money to other places, such as other bank accounts or to pay bills. I will touch on bill payment later on in this article.
Use #5 - Emergency Funds
I have talked a lot about creating a budget to gain a better understanding of your income and bills. I have also suggested that one of the best uses for a savings account is to save money. While all of that is true, you may also want to consider a different kind of savings account. You may want to consider using a savings account to save money for emergency purposes. You never know when an emergency is going to occur, or how expensive it may be. Having up to six months’ worth of expenses saved is a good rule when it comes to having enough money saved for emergencies.
There are many unfortunate circumstances that can occur that may require emergency funds. You may lose your job and not be able to find a new one. Or you may not be able to find one that pays you the same amount of money that you currently earn. If you have up to six months worth of expenses saved, you may be able to get yourself through that time and still get the bills paid.
You may be able to get by without having to take out a loan or losing your car or house. If you only want to start with a small amount, begin with $500. That $500 can usually cover most small expenses. It may be enough to get you through. Or it could be enough for you to build upon.
Use #6 - An Alternative To Credit
Let us face it, we live in a credit card world. People tend to use their credit cards for everything. Maybe they pay them off every month. I would be willing to bet that most of them do not. We also live in a world where people purchase the items they want today simply because they want them. They do not often think about whether or not they can actually afford the item. You probably know that Americans are drowning in debt. That debt continues to grow each day. It grows exponentially.
How to Use Credit Cards Properly?
In light of that, an alternative to credit is one of the best uses for a savings account. If you are not leery of constantly using a credit card, perhaps you should be. Credit cards are a great financial management tool when used properly. When they are used improperly, it can take you on a downward spiral of debt. I understand that there is a sense of security that comes with using a credit card.
There is always an available balance (as long as you pay the balance each month). If your credit card information is stolen, it is not your actual money or bank account that is stolen. You can easily close your credit card account with no real impact on your actual money. However, what you should do is only spend what you can afford to pay each month. Let the money sit in your savings account and you can earn interest on that money. You can pay your credit card bill with your savings account, so you do not continue to accrue debt.
Use #7 - Retirement
Another one of the best uses for a savings account is to use it for retirement savings. Please keep in mind that even though this is one of the uses for a savings account, it should not be your only retirement savings. It should be one of many resources that you have in your retirement arsenal. A savings account is a safe place for you to store your money. It is not like the stock market that can earn and lose money. Once you have earned interest, it is yours to keep.
Most interest-bearing savings accounts are not going to increase at a high rate. Even the highest yielding savings accounts go only so high. If you plan to retire in a few years, this may not be the route you want to go. However, if you are just beginning to save for retirement and you have 30 years ahead of you, this is a good addition to the other means by which you are saving.
If you are going to use a savings account as a way to save for retirement, you cannot take money out of this account. Once you put money into the account, you must leave it there until you actually retire. Otherwise, it will not be there when you need it. Another point of consideration is that when the money in your savings account accrues interest, you must pay taxes on it in that year. You only have to pay taxes on the money you earn in that year. You do not have to pay taxes on money previously earned. You will have already paid taxes on it. When you take the money out of the account, you do not have to pay taxes again.
Use #8 - Control Spending
This may seem surprising to you but another one of the great uses for a savings account is that it can help you control your spending. You must first create a budget, if you have not already. Creating a budget not only helps you understand your income and how much money you have to spend, but it also helps you see where you are spending your money. Most of us do not know how much money we spend and where until we see it on paper. If you know how much money you want to save and in what amount of time, it helps you to know how much money you must save each month.
Cut the Unnecessary Spending
You should put the amount of money you want to save aside and then determine how much you have left each month for your expenses. Once you pay all of the bills, determine what is left. If you are in the negative, you must cut spending. You must look critically at the items you are purchasing. Once you determine which of them can be cut, that is where you make cuts.
Believe it or not, there are always places in your budget where you can cut spending. When you think there is no place to cut spending, take a look at how much money you spend eating out. That is all instances of eating out, including coffee runs. If you cut your eating out by half, you will be surprised at how much money it saves. Once you begin to see how much that saves you, you may be willing to cut out all of the times you eat out. You may be willing to eat out only once or twice a month.
Use #9 - Bill Payment
Bill payment is another one of the uses for a savings account. You are not able to pay bills from all savings accounts, so make sure you read the details of the account in which you are interested. If you want to pay bills from your savings account, then you should first make sure you are able to do so. Once you confirm the ability to pay bills, you can begin to do so from your savings account.
Automatic Payments
Perhaps, you only want to pay certain bills, like your credit card, from your savings account. If you set up an automatic payment so that all bills, or just specific bills, are paid from your savings account, you do not have to think about it. You can set them up for automatic payment and you never have to think about it again.
Use #10 - Setting Goals
I have touched on setting goals while talking about all the uses for a savings account throughout this entire article. If you plan to save any money in your savings account, you must set goals. If you do not set goals, then how do you know what you plan to achieve? First, you must know what you want do to. After all, if you do not know where you want to go, how can you take steps to get there? So, you create your budget first. After that, you determine your final desired outcome. Then you begin to take steps to get there. The steps you take to get there become your goals.
Let me give you an example. This is purely an example intended to highlight the value in setting goals. These are not real numbers.
You want to save $12,000 because that is 6 months’ worth of expenses. You have $2,000 in expenses per month. It is not realistic for you to save $2,000 per month, but you decide that you can easily save $200 per month and possibly another $100 if you cut your spending. So, you set a goal to save $400 in 2 months, then $800 in 4 months, and so on.
Use #11 - Know What You Are Worth
When you want to use your savings account in the best way, it is good to understand what you are worth before you start. It is easy to determine your net worth. Your net worth is the difference between the value of the items you own, such as your house or car minus what you owe, such as loans and debts. The difference between those numbers is your net worth.
One of the best uses for a savings account is to increase your net worth. Any cash that you have on hand counts as money that you own and adds to your net worth. It makes sense that any money you put in your savings account adds to it and increases your net worth. As you pay off more debt and save more money in your savings account, your net worth only continues to increase.
Conclusion
This article has given you many uses for a savings account, but they all come down to the same basic premise, which is to save money and pay off debt. It all starts with creating a budget for yourself. The best financial decision that you can make for yourself is to create a budget. Once you do that, you put yourself on the right path to saving money, decreasing debt, and improving your net worth.
Once you create a budget, you can see all the areas in which you spend money. This allows you to put yourself in control of your finances and your spending. Creating a budget really is the start of it all. It lets you see where you are in regard to income and expenses. When you create a budget, you allow yourself to have a better understanding of your goals and you see how to take steps to get there. Then you are well on your way to saving money. You should set goals for yourself to help you on your path to financial security.