Savings refers to the money left over when you deduct your spending from your disposable income over a given time. Put in simpler terms; it is money you set aside for future use rather than spending it now. For instance, if you earn a net income of N250,000 monthly, your expenses might include transport, data, food, and fuel. After deducting all these expenses, whatever you have left should be your savings. You should put away at least 30% of your income. By investing you what you put away, you can increase your revenue without much effort.
Types of Savings.
This is money that you put aside for significant purchases or expenditure after taking care of your responsibilities. Personal savings should not be a temporary option; rather, it should be a way of life. Are you thinking about going on a vacation? Save towards it. That way, it helps you realize the value of simple pleasures and disciplines you to manage your money better. There is no such thing as having too many savings. Don’t be quick to reduce your savings because of a fat salary.
Emergency savings are funds that help you stay afloat in times of financial needs. They provide a debt-free means to withstand unexpected outcomes such as loss of employment, long-term illnesses, and significant home or car expenses. By the rule of thumb, you should have enough to cover at least three to six month worth of living expenses. For instance, if you lose a stable source of income, the funds can sustain you till you get another one. When keeping funds for emergencies, you should calculate the total money you want to save and set a monthly savings goal. You can also automatically transfer money directly into your emergency fund account to avoid the temptation of spending it.
This refers to the funds set aside to live on after you retire. Many people are not prepared for retirement either because they aren’t saving at all or saving enough. Typically, the government has designed a plan to take care of retirees. But the funds are supplementary and not to be a sole source of income. When saving for retirement, it is vital to bear in mind, the place you are going to live. Also, consider the type of lifestyle you are going to adopt as this would help you plan better.
Why You Should Save
Denying yourself the latest gadget or holding up on buying that fancy new bag make seem like a lot of sacrifices, but trust me, it’s for a greater good. Saving your money helps you decide whether you need something because it forces you to have a priority list and it prevents you from wasting money on something you will probably regret later.
- Financial Freedom: There’s nothing like having your own back in an emergency. You preserve your dignity as you do not have to depend on people to bail you out.
- Limit Debts: It instils in you a kind of discipline that helps you limit debts. Also, you can pay off substantial financial expenditures with your savings instead of borrowing.
- Financial Security: It gives you a sense of financial security, so even when you lose your job, you have something to tide you over till you get another one.
- Education: Higher education can improve the chances of achieving your career goals. Education is costly these days, and it is crucial to consider budgeting for school either for you or your children.
- Vacation: Sometimes, you might need to get away from your busy schedule and savings can enable you to do that. By having a vacation goal, putting money aside becomes more exciting, and it is easier to put money aside.
Difference Between a Current and Savings Account.
Savings and current accounts have different features and different purposes. Savings accounts are for individuals who want to save, and current accounts are more suitable for firms and companies. The minimum balance requirement for a savings account is considerably lower than that of a current account because it is for individuals, not firms. Also, a savings account will accrue a much higher interest than a current account because of the account’s liquidity. Since current accounts are usually for firms or companies, there is no limit on their transaction, unlike savings accounts which have a limit.
The financial need of the user often determines the type of account they open. However, current accounts are best for managing daily transactions while savings accounts are useful for keeping extra money and earning interest.
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