When you are looking at potential savings accounts, you might not feel excited about opening one because of the low-interest rates available. So, you might look for high-interest options and skip the savings account. But the purpose is to keep the money in a secure place that gives you some interest. Unlike a checking account, you can’t spend the funds from your savings account. That means these are a great way to restrict your spending and help you be more prepared in case of a financial emergency.
Filling the Account
If you don’t have much set aside yet, you’ll want to plan for an unexpected event first. Plan on having at least three months of living expenses for an emergency. And once you have that, you can work toward six months or more of expenses. And it’s also a good idea to save for things like car repairs, homeownership costs, and other things that are more predictable.
Try to set aside a percentage of each paycheck. By reducing your expenses in other areas, you can free up more funds for your savings. Look for ways to cut back or scale back, like purchasing fewer unnecessary items. If you have student loans, consider consolidating them into a new one from a private lender. A student loan consolidation is a great way to reduce your expenses since you might get a lower interest rate. That’s because your credit score might be better now than when you initially got the loans. You could also change the repayment terms, giving yourself more time to pay off the debt and reduce how much you need to pay each month.
Why You Should Open a Savings Account
These accounts help you budget, especially if you open several. You could have one for each category, such as travel or a future home. One of the benefits of opening a savings account is that it can simplify the process, making budgeting that much easier. You can open a few to serve multiple purposes. For instance, you might have one for your emergency fund and another to save for that upcoming family vacation.
Of course, you’ve already seen that one of the main advantages of a savings account is helping you cover emergency expenses. It’s best to have a fund and not need it than need one and not have one. For instance, you might want to prepare for potential car expenses. Automobiles are not cheap to maintain, and the cost of a new or used one could also be a challenge to pay for. It’s a good idea to have funds ready to cover the cost of tires, oil, and other maintenance, as well as unexpected repairs.
If you have enough income to afford gifts, consider setting some aside in the bank to cover these costs. Some gift-giving holidays, like Christmas, happen at the same time every year, so you don’t have to be unprepared. And you’ll also want to plan for other events, like birthdays, graduations, and other occasions.