Strategies for Saving Money Each Month
The Traditional Methods
> Every day put all loose change into a jar, once full, deposit the money in savings account. Soon, money will grow into a little nest egg.
> Set aside an amount of money each month/pay-cheque for your savings. People have been doing this for years, but it takes discipline.
A Newer Method: Pay Yourself First
Most people pay all bills first, then save anything that might be left over. Paying yourself first, money will get saved because paying yourself becomes first priority. Nice thing about this method is, if your budget is tight, it forces you to make adjustments elsewhere and your savings continue to grow.
The Smartest Method to Save Money: Have a Spending Plan
The best method to saving money is to create a Spending Plan or a Budget. With a budget you figure out what your income is and what your expenses are. There are ways to reduce expenses or increase income to allocate an amount of money that can be saved. This method takes a bit of work at the beginning, but it works.
Ways to Save Money – How to Do It
Use One Savings Account
> Emergency savings account
> At least one savings account for major purchases
> Retirement savings account
Use Many Savings Accounts – If you find a bank or credit union that offers a free savings account, you can open up several savings accounts. Then every time you get paid, you can put money into each of these accounts for every specific thing that you are saving for. This way you can keep your money safe from accidently being spent, and it will be there when you need it.
Places to Save Your Money
In Your Safety Deposit Box – Stashing cash in your safety deposit box is definitely safer than using a mattress or burying the money in the back yard, but money in a safety deposit box doesn’t earn interest.
In Your Bank Account – A chequing account or regular savings account is no place to save your money. Most of them pay any interest because the bank lends your money to other people when you aren’t using it. Money in a regular bank account might get used often, or you might need to withdraw it quickly, so the bank can’t lend that money out for very long because you might need it.
Other Investments – There are numerous other investments that you can use to save your money: money market funds, bonds, stocks, mutual funds and etc. If you plan to spend your savings within five years, best to find something safe to invest in. Most people, high interest savings account or a term deposit within a Tax Free Savings Account works just fine. These options are safe and sure—you know that your money is going to be there when you need it-like the stock market.
Tip 1 – Set a Savings Goal
What do you want to get from your savings? How much do you need to save? When do you need the money? You might want to save a set amount by a target date or save up for a specific purchase or project. Your savings goal will help determine which account is best for you. If you have more than one goal you could use different accounts for each one.
You can use different accounts for different goals. For example, use an instant access account to save for an emergency fund while using a fixed-rate account to save up for a deposit on a house.
Tip 2 – Know yourself when comparing rates
How hands on are you likely to be with your savings? Some accounts offer a high bonus rate which is designed to tempt you in – but bonuses drop off after a certain period.
If you have time to shop around and don’t mind switching to get the best deals, set a reminder to switch at the end of any initial bonus rate. If you don’t have time to keep switching, avoid accounts offering bonus rates and look for a rate that’s been more stable historically.
Comparison websites are a good starting point for anyone trying to find a savings account tailored to their needs.
Tip 3 – Use regular savings accounts or fixed term deposits
You could earn a bit more interest with a regular savings account or a fixed-term deposit or savings bond. But, with a fixed term account you may not be able to access your money immediately (or even not until the end of the term) – and there could be a hefty withdrawal fee.
Beware of structured products that look like cash bonds offering a high interest rate, these are risky investments and not suitable for cash savings.
Tip 4 – Be tax-wise
Do you pay income tax? If not, ask to have your account interest paid gross – otherwise tax will be automatically deducted. If you are a tax payer you can earn interest tax-free in a cash ISA. But be sure you’re getting a good interest rate so the tax benefit isn’t cancelled out by lower returns.
Tip 5 – Don’t keep a huge with just one banking group
Cash you put into banks or building societies are protected by the Financial Services Compensation Scheme (FSCS). The FSCS savings protection has a specific limited amount per authorized firm.
It is worth noting that some banking brands are part of the same authorized firm. If you have more than the limit within the same bank, or authorized firm, it’s a good idea to move the excess to make sure your money is protected.