What is saving? Simply put, it is keeping money aside for future use.
Why is it important?
Saving is important because it helps you prepare for the future financially. It is usually one of the first steps one takes on the journey to financial freedom and independence. Saving money helps you stay out of debt, achieve life goals, milestones and be prepared if a financial emergency happens. Saving could also ensure you are financially well off when you retire.
Some types of savings accounts you can have include:
- Sinking funds: These could be for travel, vacation, education, gifts, taxes, a car, medical procedure or a shopping spree. The money you save here is with the intention of spending it someday in the nearest future. Your travel or holiday fund is supposed to help you pay for trips you take; a home renovation fund is for home renovation etc. You can decide how much you want saved up at the end of a certain period and calculate how much you should be contributing monthly or daily to make that happen.
- Retirement: This is money saved up for when you no longer work. In some countries, a part of your employee pay check is already held back for your retirement (pension). You can also open a retirement account too and contribute money in there too.
- Emergency Funds: This is money saved up for emergencies or in the event of a financial life crisis such as an unexpected medical bill, loss of job or income, emergency repairs, etc. It is advices that your emergency fund should typically be cash and be about 3- 6 months of your monthly expenses.
What to look out for when choosing a savings account
- High interest rates: You want to get a savings that has high interest rates. Traditional banks sometimes don’t offer this. EQ bank has a savings account with 1.50% interest rate, Tangerine also has an interest rate of 2.10% . That means for every $100 you save, you get $1.50 back. If you are in Nigeria, PiggyVest and Cowrywise have an annual interest rate of about 10%.
- Transferability: You want to get an account that allows you to easily transfer your money should you need the cash, especially your emergency funds. Your emergency funds should ideally not be tied up in investments.
- Zero fees: You should get an account with zero fees.
My thoughts and tips
- Have multiple savings accounts for the multiple things you might be saving for. It is easier to manage and also track your goals when you separate your savings accounts. I think it is super important to have a separate account for your emergency fund.
- Your savings account shouldn’t be that easily accessible: What’s that thing they say, out of sight, out of mind. If you are unable to touch the money you have saved or have certain restrictions, e.g a business day transfer; this could help with impulse spending.
- Automate your savings: Just the same way your monthly subscriptions are automated and come out of your bank on a certain date, I think this is worth applying to your savings account too.
- Have someone hold you accountable to your savings goals.
- Join the 2021 savings challenge.
That’s it from me! Talk soon.