What is Saving?
Saving is the act of setting aside money now in preparation for the future. One important savings rule to keep in mind is “pay yourself first.”
What is Pay Yourself First?
Pay Yourself First means putting a portion of your money into a savings account before allocating the rest to your expenses. This is a crucial principle to successfully saving your money, and it can be done by including saving as an expense item in your spending plan.
Following this simple rule will allow you to:
- Establish an emergency fund so you won’t have to rely on credit
- Reach financial goals
- Have what you want without debt
Tip: Try to save at least three months’ worth of your typical expenses in your emergency fund to cover basic necessities.
The four common types of financial institutions that offer savings options include:
- Big banks
- Community banks
- Online banks
- Credit unions
In general, banks and credit unions provide four basic types of accounts with which you can manage your savings:
- Checking account
- Savings account
- Money market account
- Certificate of Deposit (CD)
Checking and savings accounts are good for storing money that you use daily and need readily available. For larger sums of money, or money that will not be needed for six months or longer, you could consider a money market account or a CD. Money that is put into a bank or credit union is insured by the federal government and protected against loss.
Saving vs. Investing
For the most part, saving is good for short-term goals, while investing is good for long-term goals. The main factor that distinguishes saving from investing is the element of risk. Investing takes on more risk, so if you choose to invest, it may be best to use funds that you may not need in the immediate future. Money for things like a down payment on a house or a car may be better deposited into a savings account.
To schedule a one-on-one appointment with a Bears for Financial Success peer mentor, email email@example.com or request a financial literacy presentation for a student group.