How to get the best out of your savings?
Updated: Jun 17
Saving money for rainy day is a tough job for most of us, especially if you are of the kind that doesn't prefer to have a budget. You may start well at the beginning of the month, there isn't any money left by the end due to some unexpected expenses. Somehow you end up spending whatever you make before you make it to the next paycheck. This article is rather a continuation of the previous blog to explain the best use of your savings in financial planning.
Savings are just like a plant that will bear fruits to fulfil your needs and can act as starting point to fulfil your dreams or achieve your financial goals.
Start by making a personal budget. Take a look at what you earn or make each month. Next, write down your fixed expenses. These are expenses like your rent, car instalment, utilities etc. Figure out monthly expenditure for groceries and other essentials which cannot be compromised. This is your bare-bones budget. It’s good to know what is the minimum amount needed to survive each month and live a good life in the long term.
Next, it’s time to calculate all your cash inflows (income) and outflows (expenses). Begin with what you bring in each month and subtract all your most essential expenses. What you’re left with is your discretional income which will pay for entertainment, clothes, and other expense. And the remaining part or share of that discretional income will go into a savings account.
Saving a certain amount from your monthly earnings may vary as per the individual depending upon his goals. Maybe that’s just $35 per month, maybe it’s $350 or $500. Having this fixed amount in your budget and treating it like any other bill will force you to save the given amount. Getting used to saving your money is just like inculcating a new habit. Once you start seeing your account pile up it won't take long to get into the habit of setting aside that money.
To make it even handier, talk to your bank about setting up a separate savings account. Setting up an auto-swipe to transfer the saving to the new account as soon as your paycheck comes in each month. Once your money starts bifurcating itself into the other saving account, your savings will run on autopilot.
Performing audit of your savings from time to time can be a good idea. Take another look at your budget. Can you increase your savings a little more? Another great way to boost that savings account is to take any extra money – things like bonuses, cash gifts for birthday, tax return, etc. and put them straight into the savings account. Again, you won’t even miss the money as you never see it, but it will help you build up your savings in no time.
Ensure this savings are sitting in an exceedingly good interest-bearing account. The higher the interest, the higher will be the returns. Since you won’t be touching this money unless it’s an emergency, you should be able to earn at least a small interest income. Talk to your banker about your best options and start putting your savings on auto-swipe to a high interest-bearing account.
One last tip: Check with your employer about matching 401K funds. You will be able to get a contribution from your firm towards your retirement savings account which would take care of you once you retire.