Tuesday, September 8, 2009

How to save and where to bank


So, as mentioned before saving is an important aspect of managing your money. There are different ways to save and there are different savings plans to consider.

Here are two savings plans to consider:
  1. Time-based savings plans - this is a great plan if you would like to achieve a monetary goal by a specific date. Take the total amount which you are aiming to save and divide it by the amount of time in which  you wish to achieve the goal and you will see how much you need to save each month to reach your goal. 
  2. "Percentage of earnings" savings plans - in this plan you decide what percentage of your income/allowance you can afford to save. 
Two very important concepts that you need to be aware of when saving are:

 Interest 
This is the percentage of money that you earn on having your savings in the bank. This is a very valuble concept and is what helps the rich get richer. You will have the opportunity to be earning two different types of interest rates on your cash. The first is simple interest and is the rate of interest the bank will quote you on for having your money in their account for a fixed period of time. The second is called compound interest and is your biggest friend. This is when you have for example saved R1000 for a year and earned R120 in simple interest, you then leaving the money in the same account and you earn more interest, instead this time you are earning interest on R1120, thus you are earning interest on your interest - this is called compound interest.  

Inflation 
This is the opposite of compound interest and is your enemy. Basically, inflation is the increase in prices of products and services over fixed periods of time.

So when you start saving money in the long term you need to be able to realistically calculate the growth of your money and this is called "real rate" of growth. You can calculate it by subtracting the inflation rate from the interest rate you are earning.

Once you have decided what type of savings plan is best for you and have worked out how to calculate your "real growth" rate you need to find a suitable bank with which to save your money. Its always best to do a little research to find the best bank for you. One way to do this is by means of a chart. Across the top list the banks you have to choose from and own the side list the following  services: Account Name, Interest Rate, Minimum balance, ATM charge, Other ATM usage charge, Monthly charge, Deposit charge, Cash deposit charge, Any other charge and No of withdrawals allowed a month. This will give you an excellent idea on which is the best place for you. You would be suprised how much money you can save on bank charges alone.

It is a good idea to have two accounts, one where yu have your everyday money that you use for your expenses and another where you keep your savings. Its very useful to have these accounts linked for easy transfers. It also makes spending your savings less tempting, especially if you leave your other card safely at home. But do keep in mind the fancier the account and the more services it offers the higher your bank charges will be.

What are your saving tips? What long term goals are you saving for? Leave a comment and I would love to know :)

Have an inspirational day

*eLLa*

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