Why It's Important To Have A Savings Account (And Use It Often)
A savings account may be the buttoned-up, tedious cousin to your free-spirited, YOLO-vibes checking account, but it needs some love in a serious way. Here's why.
Based off of headlines in recent years, one wouldn't be remiss in assuming that millennials' spending habits are essentially the first sign of the ever-impending apocalypse. But young people aren’t the only ones who should be concerned about their finances. Very few people are actually properly saving their money.
According to CNN Money, 69 percent of U.S. adults have less than $1,000 in savings, and 34 percent of people have no savings at all. Now, that can’t all be the fault of matcha and cronuts, can it?
The reasons millennials may not be on the up-and-up when it comes to financial literacy are sundry and complex, including but certainly not limited to massive student loans that are kinda hard to make sense of, and a constantly evolving job market. Still, there are important steps you can take towards securing a solid financial future that can be explained pretty simply. Take your savings account, for example.
Below, Octavia Faith, a financial coach and Girlboss contributor, walks us through why it’s so important to have a saving’s account and use it often:
Keep Your Money Safe
First and foremost, you can keep your money safe by putting it into a savings account. Not only is a savings account a psychological way to keep some of your money separate from your "everyday" money, but there are a variety of measures that genuinely protect this money.
First, your money is protected in a savings account by the FDIC—insuring up to $250,000 for most accounts. Second, says Faith, you can “put parameters in place to ensure you don't tap into your account too easily or frequently.”
K, easier said than done, right? But here's an example: Don’t enable electronic withdrawals or transfers on your savings account. Faith explains that this can be quite an effective method, because you have to physically go into a bank branch and have your teller withdraw for you. An effective deterrent if we've ever seen one.
Third, most savings accounts have a limit of six withdrawals per month. So if you see something you want online and that trigger finger starts to itch, yet you don't have cash in your checking account to cover it, this rule may be the thing that saves you from an impulse buy.
Build A Habit
Faith acknowledges that the amount of money you put away in savings is a personal decision, but it's the initiative that counts: “No matter how much (or little) you make, you should be putting something aside.”
Generally speaking, however, a good place to start is putting 15 percent of your annual income towards long-term savings. For more short term goals, like purchasing a home, aim for 10 to 20 percent of your estimated down payment each month as you save.
The important part is to consistently set a portion of your paycheck aside and to start to develop a habit. Because the benefits keep rolling in after that.
With a savings account, you’ll earn interest, and of course, consistent contributions to your account will only help you keep gain more—such is the beauty of interest that compounds over time.
All in all, Faith suggests that you think of a savings account as a personal investment. While it may sound scary to think of setting aside 15 percent of your income per year, your future self will be so, so stoked on the choices you made now. And just keep in mind that there's no upside to the shame game; if you can't swing 15 percent, put in anything at all and you’re already more on top of it than a third of the population.
Words: Eva Grant
Photo: Daria Kobayashi Ritch