A focus on saving, starting now, can help reduce financial stress and be instrumental in building wealth and greater financial stability. Saving towards goals, such as education, homeownership, an emergency fund, and retirement, can keep you on track and provide you with peace of mind in knowing you are prepared for anything. While no one can predict the future, prioritizing savings can provide you a financial security blanket throughout life. If saving has not been a priority for you, now is the perfect time to start. Choice One Community Credit Union has many savings and retirement account options for every need.
The power of compounding interest on savings
In savings or money market accounts, interest can compound. This enables you to earn interest on the interest earned over time, helping your savings to grow even faster. As your savings and investments grow, the interest will continue to grow. As an example, if you put $2000 into a savings account with a 5% interest rate that compounds annually, at the end of the first year, you will have $2,100. $2,000 in principal and $100 in interest. You will continue earning interest based on the amount you’ve saved and any interest you’ve previously accrued. Be strategic in where you place your money, knowing that the more frequently interest compounds, the faster your balance will grow.
There are several factors that can affect how fast your savings will grow. The more money you deposit into your savings over time will help you earn interest on a larger balance. Making more frequent deposits will increase the interest accrued. The interest rate and the frequency of compounding as mentioned above also determines how fast your savings will grow. When growing your savings, the longer you leave your money untouched (no withdrawals), the greater it will grow. Any account fees charged by your financial institution, such as monthly fees or minimum balance fees may also impact your savings. When opening any type of savings account, be sure to ask about fees. Your neighborhood not-for-profit credit union offers lower fees than big box banks.
Prioritizing your savings goals is important to building wealth
Saving for a particular goal, such as a down payment on a vehicle or your first home, is a great way to start a focused savings plan. It will also help in your building wealth. In addition, you should prioritize retirement savings now, no matter what your age. In fact the younger you start saving for retirement, the better. Saving to build an emergency fund should also be a main focus as it will help you cover unexpected expenses without depleting your savings.
Building an Emergency Savings Fund
Whether it’s an unexpected home or auto repair, a costly unforeseen medical bill, or a sudden reduction of work hours, it’s only a matter of time before a financial emergency strikes. An emergency savings fund can help you cover the cost of an unexpected expense without having to deplete your savings account, dip into your retirement, or incur debt. Most experts agree that ideally, an emergency savings fund should cover three to six months of your household and living expenses. If you have the ability to save more, that’s even better. Monthly payments to consider when determining an amount for emergency savings include your mortgage or rent, utilities, insurance, loans, other debt payments, food, medical costs, activities, and any other monthly expenses you incur. In the event of a job loss or sudden emergency, you will have a cushion to help you get by for a few months. Focus on emergency savings.
Saving for Retirement
Another big priority, saving for retirement needs to begin at an early age. If you don’t have a retirement or it hasn’t been a concern for you, make it a priority right now. It’s recommended that you contribute 10% to 15% or more of your gross income, depending on your budget. If your employer offers a traditional 401(k) with a match on your contributions, be sure to invest at least up to the match to take full advantage. It’s basically free money, and no one should turn down free money. You can contribute to your 401(k) as well as an IRA (Individual Retirement Account). Speak to your tax advisor about the max you can contribute across various retirement accounts.
Choice One Community Credit Union’s retirement account options include a Traditional IRA, Roth IRA, and Coverdell Education Savings Account. With a Traditional IRA, you make contributions with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement within certain limits. Speak to your tax advisor for details on deductibility and other qualifications. A Roth IRA is similar to a Traditional IRA, except it is funded with after-tax dollars. The contributions are not tax-deductible, but once you start withdrawing funds in retirement, the money is tax-free. Again, this depends on the aging requirements being satisfied. We recommend you speak to your tax advisor for complete details and qualifications.
Saving for a particular goal
You can open an earmarked savings account to help you achieve any financial goal, long or short term. This might include saving for your child’s education, saving for a down payment on a home, saving for a wedding, or saving for that dream vacation or any other large expense. Planning ahead to build savings for specific goals throughout life will help prevent you from incurring unnecessary credit card debt. Club Saving Accounts at Choice One can be customized to any need. In addition, Money Market Accounts and Certificates of Deposit can help your funds grow even faster.
Prioritize saving now
Focusing on saving for retirement, saving for an emergency, and saving for various life goals can help you enjoy more financial freedom. It will also enable you to make better financial decisions and experience less financial stress. Whatever your savings goal, start now. You’ll have that safety net you need for financial security in the years to come. It all starts with developing an earmarked savings plan to achieve your goals. Open a savings account today, commit to max contributions for retirement, and make savings a priority in your life. Set savings on autopilot into your retirement account, your emergency fund, and your goal savings accounts. Have funds go directly from your pay into various accounts. You won’t be tempted to spend the funds elsewhere. Automating your savings will enable you to grow your nest egg without having to think about it. Out of sight out of mind. Yet, the money will be there working for you. When you see how fast your savings grow, you will be happy you made the commitment.