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Saving Your Money

Introduction to Saving Money

In order to achieve financial stability and build wealth you need to be able to save money. This is often not as easy as it sounds but there are ways to save money even on the tightest budget.

Basically, saving money means that you need to spend less than what you earn. Don't confuse saving for investing, however; it is not the same thing. The purpose of saving is to be able to use your saved money instantly, whenever you need it.

You may want to save money for a variety of reasons:

  • Building up an emergency fund.

    Life is unpredictable so it is always good to be prepared for some unexpected events with your emergency savings set aside.

  • Saving for a bigger purchase.

    You may want to buy a new car, a new refrigerator, or pay the down payment on a house.

  • Saving for retirement.

    You certainly don't want to experience financial difficulties during your golden years when you no longer have the income you have now.

  • Saving for investing.

    You can be ready with the initial capital when the investment opportunity knocks.

Money Saving Ideas

With so many bills and expenses you have, saving money may seem an impossible task. Here are some ideas that can help you save money.

  • Create an automatic savings plan.

    The key to saving money is to pay yourself first and do it automatically. It is easy to disregard your savings when you come last. However, if you pay yourself first electronically and thus turn your money for saving a regular fixed expense you will soon start building up your wealth.

  • Save 10% of your earnings.

    If you haven't saved before and 10% is a too hard task for you start with 5% for the first few months and then increase this number.

  • Don't pay interest on your credit cards.

    The high interest payments on your credit cards will just eat away your budget, so don't give away to the temptation to spend the money instead of paying off your cards in full. Always strive to pay more than the minimum amount due.

  • Get a free checking account plan.

    Why pay checking account fees when there are so many free checking account plans available.

  • Shop around for cheaper insurance.

    Accidents happen and it is strongly advisable to be adequately insured. However, why pay over the odds for the same insurance policy available elsewhere when nowadays you can find and compare hundreds of policies online in just minutes.

  • Use the library.

    Why buy books when you can read them for free from your library. The same is with magazines; there are too many magazines that cost a fortune but you can read them for free at the library. Additionally, now many libraries also offer movies on DVDs, take advantage of this service.

  • Cut your phone bills.

    If you can rely on your cell phone, there is absolutely no reason to keep your home line. Additionally, you can consider using VoIP phone service which can save you a substantial amount of money from your phone bill. Furthermore, if you don't really need all the minutes and texts that are part of your mobile phone package you can consider a pay-as-you-go mobile.

  • Consider what you will save in the long run.

    Energy efficient appliances may cost more when you buy them but they will make up their extra cost and even more in the long run. Always make the appropriate calculations whether the low initial price will cost you bigger bills later.

Where to Save

When choosing where to keep your savings consider the following factors:

  • quick access
  • safety
  • earnings

There is more than one savings vehicle you could use and each has its advantages over the others so prioritize the factors above and choose the vehicle that suits your needs the most.

Savings accounts

The best thing about savings accounts is that you can always access your money at a minute's notice. Savings accounts are also very safe. However, probably the biggest flaw of savings accounts is that you are not putting your money to work. In fact a particularly low interest rate may mean losing purchasing power after accounting for inflation.

Money market accounts

Money market accounts are just as safe as savings accounts but tend to pay higher interest. This is their biggest advantage over savings accounts. However, money market accounts usually have more restrictions, such as higher balance requirements or a limited number of withdrawals.

Money market funds

Do not confuse money market funds for money market accounts; they are not the same thing. Money market funds (in fact money market mutual funds) are also considered safe but they are not FDIC insured. They pay higher interest rates but you may not be able to access your money immediately in contrast to savings accounts.

Certificates of Deposit (CDs)

The certificates of deposit typically offer higher interest rates than regular savings accounts or money market accounts. However, their biggest disadvantage is that once you place your money on deposit, it should remain there for a certain amount of time. If you want to withdraw it earlier you will have to pay a penalty.

Finally, remember: even if you are already saving money, you can always find more ways to save more. Start saving money early, don't underestimate the power of compounding interest and make sure your money is working for you.

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