Building savings may be a challenge if your debt level is high, your payments are large, or your income is small. However, the confidence of knowing that you have cash in the bank can make it easier to add to those funds.
Where Do I Start?
Most employers will pay you via direct deposit. Set up a traditional savings account to start and a checking account so you can pay your debts. If you don’t have emergency savings, it’s good to set up an online savings account and start to load some cash from each check into that account.
Online savings accounts generally have a higher interest rate and fewer or lower fees. According to the experts at SoFi, “The best type of savings account for those who need to build up emergency savings may be the account you can ignore. Just let those funds stack until you need them.”
Be Sure You Diversify
While savings can give you a cushion and protect you from financial storms, the interest you gain from traditional savings will not keep up with inflation. Instead, you will need other investments to grow faster than savings to stay ahead of the financial curve.
Savings Vs. Consumption
Economic growth is cyclical. A habit of savings during the good times can lessen the harshness of a tumble when the economy stumbles or contracts. While a harsh economic event such as a war or a pandemic can push people into savings, this can also limit or slow growth coming out of the hard times.
As things improve in the economy, consumption expands and the economy grows. So if you have the savings available to start a business or buy into a business, you may find that your financial situation dramatically improves during the subsequent economic recovery.
Savings Boosts the Power of Banks
Banks make money on the savings of others. If you have savings, your bank pays you a bit of interest and lends out money at a higher interest rate. Though “money in the bank” is currently really “money on the screen,” the power of savings is beneficial to those who need that security and those who need to expand. If your savings go into your own business or education, you invest in your future.
If your bank has a strong base of funds from individuals, they can lend money to those of reasonable risk to improve your community’s business growth and personal stability. The pressure to consume can be tremendous, especially if you are new to the saving habit. The art of saving is critical to managing your money; spending wisely and saving consistently can allow you to have what you need now and protect yourself against financial jolts in the future.
Savings offer you and yours a consistent cushion for the future. With savings, a financial shock to your household, community, or country can protect you from default and loss. Make your savings contribution as steady as any other bill to invest in your future. The financial consultants at Sofi Invest (SoFi Bank) are more than happy to assist you with more details about savings.
