Who Needs A Savings Strategy?
by Kristi Patrice Carter, J.D.
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.
About the Author
|Kirsti Patrice Carter is an experienced copywriter, a published author, and she owns three successful online writing businesses (kpcresumes.com, kpcmarketing, and kpcwriting.com). Her book, Fire Your Boss and Hire Yourself, is being featured on freelanceyourway.com.|
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