By Jessica Malitoris on March 16, 2010
.jpg.aspx?width=75&height=75) In the present economy, often the idea of being able to set aside money seems unrealistic, but in truth saving money can be simpler and less straining than it first appears. The best way to begin is to open a savings account in a bank of your choice. Different banks have varying policies and initial deposit requirements, so talk with bank representatives to be sure you understand all the specifics of your account. Keep in mind that the IRA—Individual Retirement Account—is a tax-free savings option. There are a number of different types of IRAs, and once again it is important to consult a bank representative about which choice is best for you.
Once you have a savings account, the best way to increase savings is by using the banking system to your benefit through interest. When a person puts money into a bank account, they agree to allow the bank to use that money for its purposes. However, the bank must pay a small fee for this privilege, and this fee is called interest. Interest is always a percentage of the amount of money in a given account, though the actual percentage can vary.
An account with interest gains money even without new deposits being made. For example, if a person deposits $10 into a savings account that has an interest rate of 1% per year, after 10 years, that person will have a little over $11 in their account. However, to use a savings account to best advantage, it helps to deposit even small amounts over time. For example, if the same person adds $5 every quarter, after a decade that person has about $220 in their account. The interest, as a percentage, starts small, but builds as the amount of money in the account increases.
Saving money does not have to break your budget. A great way to determine how much money to save can be by creating a monthly budget and keeping track of spending. If, at the end of the month, you find that you have spent less than you budgeted for the month, deposit the extra money in the account. Another option is to set aside a small amount each month, for example, $5, that you add to your savings.
Building wealth does not have to be a burden: small deposits can go a long way towards saving!
Source:
Feenberg, Daniel and Jonathan Skinner. Sources of IRA Saving. Cambridge, MASS: National Bureau of Economic Research, 1989.
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