Everything You Need to Know About Saving Money
Frequently Asked Questions
How much money should you have in savings?
The amount of money you keep in a savings account will depend on the financial goals you have put in place. The first step is to take a look at your financial statements and analyze where you spend your money, as well as where it goes. Next, set a goal for yourself, such as saving to buy a house or a 10-year wedding anniversary. Or, if you have debt to pay, make paying it off your first goal before saving other funds or investing. It’s also important to note that savings accounts are not meant to be tapped into frequently, unlike checking accounts. Because of that, your bank may limit you to a certain number of withdrawal transactions each month.
Which savings account will earn you the most money?
In most cases, a high-interest savings account, also known as a high-yield savings account, will help you grow money while it is in your savings account. Typically, savings accounts pay interest on your deposits, and interest rates vary from bank to bank. But with a high-yield savings account, you receive a relatively high rate on the balance. Top rates on these types of accounts are typically 20 or more times the national average savings rate, multiplying your earnings. The funds will also compound in your account, earning you more money than the typical savings account.
What is the 30-day rule?
The 30-day rule is a guideline to follow when you see something you would like to buy, but do not necessarily need. Instead of immediately purchasing the item at hand, the rule recommends that you wait 30 days to think harder about whether or not you should purchase the item. The rule gives you time to make smart financial choices, and search for a better deal if applicable.
How do you start saving money?
To save money, you first have to take a hard look at your expenses and figure out how much you spend regularly. You can then compare your expenses to your savings and set up a budget. With a budget, you can allocate an amount of funds for savings, and also determine where you may be able to cut back on spending. When choosing how much you want to save, you should create short- and long-term financial goals to meet. Once you are set up, remember to continue checking back on your goals and adjusting your budget to meet them.
A credit score is a number that evaluates and rates your creditworthiness based on your credit history. Lenders use credit scores to decide whether to approve someone for a loan or credit card and to determine what interest rate to charge. A credit score is a number that falls in a range from about 300 to 850, with the higher score the better.
Compound interest is an essential concept to understand when managing your finances. It can help you earn a higher return on your savings and investments, but it can also work against you when you're paying interest on a loan.
A zero-based budget is a budgeting strategy in which you assign every dollar of your income a job. By the end of the month, after you account for all of your expenses, savings, and spending, you should have no money left.
The 50/30/20 rule of thumb is a set of easy guidelines for how to plan your budget. Using them, you allocate your after-tax income to the following categories.
Interest Checking Account
An interest checking account is a checking account that accrues interest on the money in your account. As long as the requirements to earn interest are manageable, the interest benefit of these accounts gives savers an opportunity to grow their deposits on autopilot.
An emergency fund is money that you have set aside to cover any financial emergencies or unexpected expenses that may come up. Those can include anything that you haven't planned for, such as unexpected car repairs, medical bills, unemployment or other income loss, property damage, or family emergencies.
Health savings account
A Health savings account (HSA) is a special type of tax-free savings account that you can use to save money for medical expenses when you are enrolled in a qualified high deductible health care plan. Health Savings Accounts have many benefits and can double as a savings vessel for you if you do not use the money in the plan for medical expenses.
A traditional IRA (individual retirement account) is an investment account that offers tax-advantaged retirement savings. Contributions to a traditional IRA are tax-deductible, although you must pay tax on withdrawals in retirement.
Money Market Account
A money market account is a high-interest savings account that also shares some features with checking accounts. If you have enough cash on hand to open one, it can be a useful savings tool that allows limited access to your funds while earning more interest than a traditional savings account.
Discretionary income refers to the amount of income left over after accounting for taxes and essential day-to-day expenses. It's distinct from disposable income, which is simply the amount of income left over after taxes are taken out.
Disposable income is the money you have left from your income after you pay taxes. It's calculated using the following simple formula: disposable income = personal income – personal current taxes.
A savings account is a basic type of bank account that allows you to deposit money, keep it safe, and withdraw funds, all while earning interest. Savings accounts offered by most banks, credit unions, and other financial institutions are FDIC insured and typically pay interest on your deposits. Some savings accounts offer higher interest rates than others.