One of the most important things you can do for yourself -- and your future -- is to set aside money for saving. Opening a savings account is a good way to start. A habit of saving can help you achieve financial freedom, since you will be prepared for emergencies, as well as prepare for the future that you want. In order to help you better understand the process, here are 10 things you should know about saving your money:
[In Pictures: 8 Painless Ways to Save Money.]
1. Compound Interest Really is Magic
You should realize that compound interest really can help you build your savings faster. This means that the earlier you start, the more your savings will grow. Additionally, realize that the best yield matters, so you should look for high yield money market account or savings.
2. It's OK to Start Small
Many people think they need to start with $1,000 for an emergency fund, or make a big contribution to a retirement account. This is not true. It is OK to start small. Figure out what you can afford now, and get in the habit of saving. Just make sure to increase the amount you save as your income increases, and/or as you pay down debt.
3. You Need Savings Goals
Carefully think about what you want your savings accounts to accomplish, and set goals. Having goals for your money will help you better prepare, and it gives you something to work for. Then you need to create a plan to help you reach those goals.
4. Different Accounts Accomplish Various Purposes
There is more than one kind of savings account. You should have different accounts for different goals. Your emergency fund should be distinct from your retirement account, and savings for short term goals should separate from both of those. Consider the type of account you need for each of your savings goals.
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5. Savings Should Be Part of Your Budget
You will be better off if you make your savings part of your budget. Think of your savings contributions as an "expense" -- and an important one at that. Put "paying yourself" at the top of your financial priorities list.
6. Cash is Not Always King
When it comes to saving, cash is not always king. While you want your emergency fund and short term savings goals to benefit from the liquidity of cash, more long term savings endeavors need something with a higher yield. Long term, you need to beat inflation, so that your buying power isn't eroded during retirement. Consider investments like stocks and bonds for long term savings goals, like retirement.
7. For Retirement, Max Out Tax-Advantaged Accounts First
One of the ways to get ahead with your retirement savings is to invest. Before you start using a regular investment account, though, make sure you have maxed out your tax-advantage first. Putting money into a 401k and an IRA (including Roth options) before you move to other types of investment accounts is a good idea, since you will see tax advantages.
8. Sometimes You Can Save for Others
If you want to help others, you can do so by saving for others' futures. College savings accounts, trust funds and accounts for charitable organizations can help you leave a legacy, and feel good about what you do with your money. And in some cases, you end up with a tax break.
9. Spending is Never Saving
Many people talk of "saving" when they get a "good deal." However, you really are not saving in such cases; you are spending money. If you do not need the item, or do not even really want it that much, then the spending aspect is even more pronounced. Do not confuse getting a good bargain with actually saving money.
10. It is Possible to get Too Carried Away
While you want to save for the future, it is possible to get too carried away with saving money. Remember that life is for living as well. Strike a balance so that you are saving enough to protect you during an emergency, and to help you toward a fulfilling retirement, but do not lose sight of today.
Pinyo is the owner of Moolanomy Personal Finance Blog, which covers a wide range of personal finance and investing topics, with features that include reviews, comparison guides, and Q&A sections.