Don't Borrow, Save Your Money for Future Goals or Emergencies

Do you need a new car or appliance? Do you need money for your kids clothes and schooling? Many people borrow money to handle emergencies or to purchase needed items. It costs too much to borrow money for these things. It is much cheaper to start a savings plan to pay for your emergencies and goals.

Before you start a savings plan, you need to decide what your future goals are for your saved money. Ask yourself

  • How much money do you need to meet your goals?
  • How much time do you have to save for these goals?
  • What interest can you earn on your money while saving?

You can save your money in different places like a regular bank, a savings and loan, or credit union. Before making your final decision on where to save, you need to ask these questions about these places:

  • What is the cost to open a savings account? Are there service fees or costs in making deposits or withdrawals?
  • What is the interest rate? This rate will vary from one savings institution to another.
  • What is the minimum amount you can put into savings? Some institutions require a minimum amount of money to open a savings account.
  • What is the maturity length? Sometimes you must leave your money in the savings plan for a certain length of time. If your withdraw your money too soon, you may lose interest and/or pay a penalty.

You can start your monthly savings at any amount you wish. The higher the interest rate for your savings account, the more money you will earn. Your money will grow larger over a period of time.

Here is an example of how saving $10 a month can grow over time:

Year 3% interest 7% interest
1 $122 $125
2 $247 $258
3 $376 $402
4 $509 $555
5 $646 $720
10 $1,397 $1,559
20 $3,283 $5,240

There are a lot of strategies you can use to add more money to your savings. In your monthly spending plan, you can treat your savings just like another bill. Pay your savings account first, before paying your other expenses.

Other tips to help you save are:

  • Have your employer put your savings directly from your paycheck into your account. This way you will not forget to put the money in your savings and you may not miss the money anyway.
  • Put all tax refunds, work overtime, gift money, refunds, and raises into your account.
  • Collect your loose change and as it grows monthly, put it in your account. Get your whole family involved in saving. Have everyone think of some ways to spend less money and put these savings in the bank. For example, by eating out less often by even one meal, you can put that money in the bank.

If you haven't started a savings plan, do not be discouraged. You can start now and watch it grow to meet your financial goals.

Written by Katherine J. Reuter, Extension Educator, Consumer and Family Economics, University of Illinois Extension, Countryside Extension Center.

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