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Who needs a Saving Strategy?
You might be saying to yourself, "I don't need a saving strategy, because I don't
need to save any money." Unfortunately, I disagree. Everyone needs a savings
strategy. As a college student, you definitely need a savings strategy because you
can become a millionaire by the time you're 30 if you take advantage of time and
compounded interest. Compounded interest allows you to earn interest on your
interest. For example, if you had $1,000 and received an investment return of 15%
every year, in 5 years you would have $2,010, in 10 years you would have $4,050,
in 15 years you would have $8,150, and in 20 years, you would have $16,380.
There isn't anything magical about compounded interest. By investing your money
smartly, you made it work harder for you. To develop a smart savings strategy,
you need to follow five steps.
The first step is to set a regular savings goal. You should make a list of how
much money you want to save every month. Most financial experts recommend
that you save 10% of your annual income but you should save whatever makes you
happy. If you’re more comfortable saving 20%, then save 20%. If you would
rather save 5%, then save 5%. It’s your life, and you need to take control of it.
You should ask yourself: Is there something special that you want to buy? How
long will it take me to save enough money to pay for it? Can I wait, or do I have to
have it right now? Once you’ve determined how much you need, and set a savings
goal, it’s time to start saving. It’s important to be committed to this amount and let
nothing keep you from saving it.
The second step is to put a little money aside whenever you get paid. Don't
feel bad if you cannot afford to save a lot of money. Maybe you'll only be able to
save $5 a week but that’s great, because you saved – it’s your money. And the
great thing is, that if you save $5 a week at only 3.5% interest you'll earn about
$3,200 in a 10-year period. Now that is the benefit of time and compounded
interest.
The third step is put your money in a working savings account at your local
bank. This account should be used as your own personal savings and should be
used whenever you’re short of cash. If there ever comes a time when you
overspent and don't have enough money to pay your bills, you can dip into this
savings account And, the good thing about this account is that you don't have to
feel bad about dipping into it, because that’s what it’s there for.
The fourth step is to establish a special savings account for those long-term
special purchases. For example, a really close friend of mine recently purchased
her first car and paid cash for it out of her special savings account. Although the
car was used, she paid $2,000 cash for it, and won't have to worry about a car note.
She saved only $100 a month in her special savings account, and was able to
purchase a real nice car in less than two years.
The fifth step is to establish a reserve savings account after you feel
comfortable with the amount in your working savings account. A reserve savings
account is one that you will use for investment purposes only. This money is truly
emergency money and should not be touched.
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The copyright for this content entitled "Who needs a Saving Strategy?" has been specified by the contributor as:
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This intel was contributed by Howard
Howard
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May, 2012
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