Important Factors for Deciding Where to Save
When deciding where to save, you should consider the following:
- Deposit requirements for the savings account. Is there a minimum deposit required to open the account? Is there a minimum balance required to keep the account open? Are small deposits accepted? Can variable sums be deposited? Can deposits be made frequently? What paperwork is required?
- Terms of use. Is the saving program compulsory or voluntary? Do you have to commit to saving a set amount at regular intervals or over a certain time period? Are there rules about how much you must deposit and when? Are there rules about how much you are allowed to withdraw and when? Can you withdraw the money at any time without penalty?
- Cost. What fees are charged for deposits, withdrawals, or passbooks? Some forms of saving may lose value during times of inflation or economic instability. You need to consider such costs even though they do not involve payment of actual fees.
- Access/Ease of use. Is the account convenient? What are the institution’s hours of operation? Is it open at convenient times? How far is the institution from your home or workplace? Are transactions quick and confidential? What is the quality of customer service? Is the atmosphere comfortable and friendly? Are there long lines at the teller windows? Is information on the account easily available? Does it provide statements? Are they easy to understand? Are the application procedures easy to follow? Does it have an ATM network?
- Safety. What is the reputation of the institution? Does it have insurance or other guarantees to safeguard funds? Are the telephone or electronic transactions safe? Is the bank or its branch located in a safe neighborhood location?
- Liquidity. How easy is it to withdraw funds from the account? Will the full amount be available? Are fees charged if the funds are withdrawn before a specified date?
- Interest. Will your savings earn interest? If so, how much? How and when is the interest paid? What is the difference in interest rates earned across different types of savings products or plans?
How to Make a Savings Plan
A savings plan is a critical tool for managing money to meet short-, medium-, or long-term financial goals. To make a savings plan, follow the steps outlined below:
- Set savings goals. 2. Figure out how much you need to save over what period of time to meet your savings goals. Set a savings target. 3. Figure out how much you are earning over this period of time, the regularity (or irregularity) of your earnings, and how much you can expect to save on a regular basis. 4. Identify which expense you can cut back (for example, video rental, cigarettes, or tea breaks) and reallocate this amount to your savings. 5. Decide where you will save. Identify places to save, available savings products, and their pros and cons. 6. Plan how much and how often you will save. For example, you could put a specified amount aside in an envelope when you are paid or at the end of each business day and keep it in a safe place until you are able to take it to the bank. Go to the bank on a set day of the week or month. If you are a wage earner and your employer is linked to a bank, consider a deduction from your paycheck that is automatically deposited into your savings account. 7. Keep track of your savings. Monitor progress towards your savings target on a regular basis by checking the amount you have saved and how close you are to your goal. Check bank statements, passbooks, or other sources of information on your savings.
Rules of Thumb for Savings
While basic principles of money management can apply to everyone, decisions to save or consume depend very much on your level of income, access to loans, access to appropriate savings products, and personal discipline. Nevertheless, there are a number of rules of thumb that you can use to guide decisions about savings and consumption.3
- Save as much as you can as soon as you can. The more you save, the better off you’ll be.
- Save as you earn.
- Try to save 10% of your income even if you don’t have a specific purchase or investment for which you are saving.
- Pay yourself first—put 10% of your earnings aside for savings before you do anything else. If you can’t afford 10% right away, start with less, but save something.
- Calculate how your money can grow over time if you save regularly in an account that earns interest.
- Don’t carry a lot of cash—avoid temptation to spend it!
- Spend carefully. If you purchase big items, consider how much you could resell them for. Look for opportunities to save money by bulk buying of nonperishables.
- Pay off your debts. Some people recommend paying down your debt before you start to save; others recommend saving even while paying down debt because it is important to begin building assets as soon as possible. This choice will depend on individual priorities, situation, and means. Total household debt should not exceed 36% of household income.
- Keep three to six months of living expenses in an emergency fund at all times. It can be used in case of job loss, unexpected illness, and to meet other emergency needs. An emergency fund will reduce your anxiety.
- Keep emergency funds in a separate account. Open two savings accounts— one for emergencies that is easy to access and doesn’t have any penalties for withdrawal, and one for savings for other goals that is harder to access (and therefore less tempting to withdraw the money). Keeping some savings “out of reach” is important.
- Find savings products that match your savings goals.
Good savings behavior requires discipline; discipline is learned through practice!
