What is a savings account and why open one
When looking at potential savings accounts, you might not be excited about opening one due to the low interest rates available. So you could look for high interest options and ignore the savings account. But the point is to keep the money in a safe place that earns you some interest. Unlike a checking account, you cannot spend the funds in your savings account. This means that this is a great way to limit your spending and help you better prepare for a financial emergency.
If you don’t have much on your side yet, you’ll want to plan an unexpected event first. Plan to have at least three months of living expenses in case of an emergency. And once you have that, you can work on spending six months or more. And it’s also a good idea to save for things like auto repairs, homeownership costs, and other things that are more predictable.
Try to set aside a percentage of each paycheck. By reducing your spending in other areas, you can free up more funds for your savings. Look for ways to cut back or downsize, like buying fewer unnecessary items. If you have student loans, consider consolidating them into a new loan from a private lender. A student loan consolidation is a great way to reduce your expenses because you might get a lower interest rate. This is because your credit score might be better now than when you first got the loans. You can also change the repayment terms, giving you more time to pay off debt and lower the amount you owe each month.
Why should you open a savings account
These accounts help you budget, especially if you open more than one. You could have one for each category, like a trip or a future home. One of the benefits of opening a savings account is that it can simplify the process, which makes budgeting much easier. You can open a few to serve multiple purposes. For example, you could have one for your emergency fund and another to save for the next family vacation.
Of course, you’ve already seen that one of the main benefits of a savings account is helping you cover emergency expenses. It is better to have a fund and not need it than to need it and not have it. For example, you might want to prepare for potential car expenses. Automobiles are not cheap to maintain, and the cost of a new or used car could also be a challenge to pay. It’s a good idea to have funds ready to cover the cost of tires, oil, and other maintenance, as well as unscheduled repairs.
If you have enough income to afford freebies, consider setting aside some in the bank to cover these costs. Some holiday celebrations, like Christmas, are the same time each year, so you don’t have to be caught off guard. And you’ll want to plan other events as well, like birthdays, graduation ceremonies, and other occasions.