Saving is setting money aside for something we may want or need for the future. It is extremely important to save a portion of any income that we receive with the rule of thumb being 20%. We should always have money readily available in savings for emergencies. We need to train ourselves to make savings part of our routine. Even in the beginning, if we are unable to save 20% , that is still okay but the key is to starting to save so that we develop savings habit.
How do we save? Are there easy tips?
Pay yourself first is an effortless way to make savings a regular habit. This can be easily done by having an amount deducted from our paychecks through automatic deductions and deposited into a savings account. Alternatively, we can treat our savings as part of our monthly budget so that we can regularly save the same amount each month.
Types of Savings Accounts:
1. Savings Account: A savings account pays a lower interest rate and are often attached to a checking account so that we can easily transfer money back and forth. Savings accounts are a good place for emergency funds.
2. Money market account: Money market accounts have higher interest rates than checking and savings accounts. However, they limit the number of withdrawals one can make. These are typically useful when money does not need to be withdrawn frequently.
3. Certificate of Deposit: The rate of interest on a CD depends on the locking period. Most CDs pay a higher interest rate, but they do require a minimum deposit and do not allow any additions or withdrawals from the CD for that stipulated time period.
Investing:
Investing is the act of allocating funds to specific entities (such as stocks or bonds) to grow money over time. College students often do not realize that they have the most powerful tool in their possession when it comes to investing to make money, which is time Investments in the market are not guaranteed to grow and can lead to loss of money, and this leads to the very basic principle of risk vs return.
What are the basic investment guidelines?
1. Investments should always be diversified: One should invest in a wide variety of products to reap the benefits of multiple products and to reduce the risk of losing all one’s contributions on one product that didn’t do well.
2. Patience is the key: Returns may be very small in the short term but the largest returns await in the long term. We should not withdraw our investment or interest earned prematurely and patiently monitor for the profits to eventually grow longer run.
3 Small but consistent investments: One should invest consistently and early on, even if one can afford small amounts at a time, this will always be helpful till the point one becomes financially stable.
Why is saving an investment?
1. Direct source of investment: One can easily choose to directly invest savings in assets. These investments can generate returns and boost financial stability.
2. Buffer against Economic Turbulence: Savings serve as a buffer against any economic downturns or turbulence. It offers financial stability which encourages individuals to take more risks and invest in long-term ventures.
3. Source of Economic Growth: Investments, financed by savings drive economic growth by increasing productivity, leads to creation of jobs and overall improvement in living standards. All these factors stimulate demand and further economic growth.
In essence, savings provides the necessary capital for investment which is crucial for economic growth and financial well being. It is important to note that all savings are automatically channeled into productive investments .
