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Five Guidelines to Creating an Effective Savings Plan

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January 2019
Money Management

The time to create a savings plan is not when you need the money most. There will be all kinds of situations in your life requiring money. Whether that is an emergency situation like job loss or something you know will happen like retirement, it’s important you have the money you need to sustain you during those times. In a study conducted by Bankrate.com, results showed that 20 percent of Americans don’t save anything at all, and an additional 47 percent of people save 10 percent or less of their income. Do you fall into one of those categories?
 
The good news is it’s never too late to start saving. Whether you get started with a high yield savings account or are just throwing spare change into a jar, do something. The following are five guidelines to help you get a fresh start with a new savings plan.
 

1. Make Saving a Fixed Priority

Rather than waiting until all your bills and expenses are paid and saving any extra you have left, prioritize saving. Make it a fixed item just as you would your mortgage payment or utility bills. Overspending happens when people don’t prioritize or know where their money is going. If you already have your savings set aside, you won’t be able to unconsciously spend it on something you don’t really need.
 
There are some different types of savings accounts that you might consider to do this. They include high yield savings accounts and standard accounts. The benefit of opening one that’s high yield is you’ll reach your goals faster. These accounts offer more when it comes to interest earned. Add that to what you are able to put into the account, and it multiplies more quickly.
 
Certificates are another great option for a higher return on investment. They earn more in interest, but to receive that promised return, your deposit will have to remain in the credit union for a longer period of time. This is great for long-term savings.
 
Don’t be afraid to pay yourself first. It may seem like a selfish endeavor to put savings away before handling other expenses or giving to charity, but if you don’t financially take care of your future, you won’t even have the cash you need to pay those other expenses. It’s not selfish, and when you are financially stable, you are able to help others more plentifully than you could if you were living paycheck to paycheck.
 

2. Take Advantage of Automatic Transfers

You might already use automatic services to pay the big bills you have, so now that your savings account is a fixed priority, set up automatic transfers for that too. It’s easy to get it all squared away, and you won’t have to worry about remembering to pay yourself. Your transfer can be set to take place the day after payday, or another particular day of the month, whatever is easiest for you. This ensures you have the cash in your checking to make the transfer, and it also ensures you don’t skip out on your commitment to yourself.
 

3. Treat Bonuses as Bonuses

When you receive a bonus at work, a financial gift from a loved one or even extra cash from selling something online, treat it as a true bonus. Consider putting most or all of it into your savings account. The greater sum of money you have in the account, the greater savings it will yield. If it’s extra money, you won’t have it designated to other expenses, so you may as well put it away.
 
While some may not consider a tax return a bonus, it can still be treated as such. Depending on your situation, your tax return could be a big chunk of money, which could really give your savings a boost. If you feel it’s a worthy cause, you might be able to do something fun with a little of it first. People need to let go and relax once in a while, but just be sure to treat the majority of your “bonus” money as a true bonus.
 

4. Categorize Your Savings

You may have your high yield savings for a certain purpose, like retirement, but it doesn’t have to all go towards that. Consider breaking it down into other categories. For example, you might put 70 percent of your savings towards retirement, 10 percent toward an annual holiday and 20 percent toward a family vacation. Some consider this a “savings bucket.”
 
Be sure to check with your financial institution to understand the guidelines surrounding withdrawals, and plan around them. If you are allowed two withdrawals without consequence each year, schedule your savings to reach the vacation or holiday amount by the time you are allowed the transaction.
 

5. Don’t Forget About Emergencies

As was mentioned before, there are emergencies that you just can’t foresee. This includes the loss of a job, a natural disaster or even a health concern. It’s important you designate one savings category toward emergencies. Some people choose to keep this cash in their home, rather than at a financial institution, so they have it right when they need it. If you do choose to keep it at the credit union, deposit it in a separate account so you can be reminded each time that it’s strictly for emergencies. You can also get an account that doesn’t have withdrawal penalties, whereas your other savings might.
 
Begin your emergency fund with as much as you can spare, and work up to $500. Once you have reached your goal, it is recommended you reach three to six months’ worth of expenses. After experiencing an emergency, and when you are financially stable again, build it back up.
 

How to Create Your Savings Account

The best way to create a savings account is to go to the credit union to speak with a representative. You probably have questions, and they have answers. The following are some questions to inquire about:

  • What type of savings account should I open? – There are regular savings accounts, high yield savings, share certificates, IRA certificates, money markets and more. Speak with a representative about what you plan to use your savings for so he or she can guide you to the best account to fulfill your needs.

  • What is the minimum initial deposit? – Each different account will have a minimum required initial deposit. Be sure you understand what it is before you get too attached to the idea of a certain type of savings.

  • Is there a withdrawal penalty? – If you open the right type of account, you shouldn’t have to worry about early withdrawals. Just to be safe, make sure you understand whether or not there is a penalty for doing so.
     

Of course, you’ll probably have other questions, and that’s great. The more knowledge you gain, the more success you’ll have with your savings account.

After your questions are answered, it’s okay to think about it for a little while. You don’t have to open your account that very minute. Consider all of your options and go over all of the parameters of each account before you decide which savings will work the best for your life. After you have made the decision, go with confidence to your credit union and get started on the path to a more financially secure future.
 

Getting Started Today

There’s no better time to start saving for retirement, vacations, holidays, emergencies or even just a rainy day. Whether you have a good idea how to do this, or need more information, Deer Valley Credit Union is eager to speak with you. For more information, contact your credit union today.