If you’re an avid saver, like I am, you’re probably fairly upset about the terribly low rate that your bank is offering on a savings account. Local banks are the worst, mine is offering.2%. Online banks are better, I’m currently getting 1.1% with ING direct. But that’s still terrible and if you have any kind of balance you’re not making much. I used to do calculations to figure out how much cash I would need in order to simply live on the interest each year. Assuming I needed $40,000 a year for expenses, I would need $1 million earning 4% in a savings account. A few years ago that interest rate was easy to get. Now it’s almost impossible.
So what should we do? We have cash in savings but at 1.1% it barely makes enough to serve a purpose in savings. Consequently we are looking for other ways to make money with our money.
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You’re probably heard of the old cliché, “a road to somewhere, will lead to a town called Nowhere.” Have you ever thought about what this actually means? It means, that if you don’t know where you’re going anything will do. This holds true in finances as well as life. If you establish goals for you and your family, this will help keep your financial picture in perspective. For example, if one of you would like to stay home with the new baby, you can budget to do this well in advance. You can budget to get out of debt or put some savings aside in order to do this. Keeping your long term goals in mind will help you when you’re tempted to spend money on things you really don’t need.
In order to establish your financial life goals you need to evaluate your life. Asking yourself a few of the following questions will help you establish your long-term financial goals:
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The number one goal in budgeting is that you spend less than you make. This applies for personal finances. It is not just for businesses. You as a person or a family are an economic unit that needs to operate like a business. To be financially sustainable as an economic entity you must manage your spending so that you spend less than your income every day, every week, every month and every year. This is the key premise to successful budgeting. It is an attitude. You need to learn this attitude. It is the old adage…You need to have someone teach you how to fish not have someone give you some fish. The key to the key is to action the attitude of spending less than you make.
You need to look at the fundamentals of your budget. There is the income side and there is the spending side. On the income side you may have a nice steady job where you get paid bi-weekly. Other folks have jobs or businesses that pay in cycles or are seasonal. There are budgets so that you can get a snapshot of your income. This way you know when your income comes in. The idea of a budget is that when you know when your income is coming in you can plan how to spend it so that you spend less than you make. If you are on a bi-weekly schedule it is routine. If you are on a seasonal income where you make most of your income in 3 or 6 months of the year, you need to plan your spending so that you save money when you have. You save the appropriate amount to spend when the income is low in the off season.
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There are certain things consumers should know when searching for there next interest bearing savings account. Finding the best savings account interest rates will vary with the economy, some times they are pretty decent sometimes they are a bit less than decent. When you have some money that you can stash, a bank account is simply the safest place to put it. Savings accounts are insured by the Federal Deposit Insurance Company (FDIC) so if the bank fails, your money will be reimbursed up to certain limits.
Many people feel a certain amount of surety knowing that their principal is always protected. Of course for the long haul savings accounts are not the best investment vehicle simply because the interest rates that are offered are not high enough to really see too much growth.
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