Let’s face it saving money can be really tough!
You have to cover all of the bills, try to have some fun and then, hopefully, still have something left over at the end of the month to put away for the future. It’s not always easy.
Even if you do have some spare cash, where do you save it and how should you manage the process?
A regular savings account can be a great way to solve many of your savings issues.
I love my regular savings accounts and I always renew them every year, making them a permanent part of my savings strategy.
A regular saver is great for so many reasons including:
With a regular savings account, you can usually set up a standing order to pay funds into the savings account each month. In fact, to qualify for most regular savings accounts you will have to set up a regular payment into the account.
Although this might seem like a chore, it’s actually a really great idea.
If you want to achieve Financial Freedom, you will have to get comfortable with the concept of paying yourself first. This means that you put money into savings at the beginning of the month, before you even pay your other bills and expenses.
Although this might seem counter-intuitive, it means that your savings become an automatic part of your budget and you don’t have to worry about having enough money left over at the end of the month.
When you first think about paying yourself first, it can be a little scary. “If I struggle to make ends meet now, how will I afford to save as well?”.
The good news is that you can start small. Perhaps try to put aside $20 at the beginning of the month and then work on increasing that amount. If you are still struggling to find the extra money to put away into a regular savings account, you could always check out these 5 side hustles to help you earn an extra $20 today and then every day after that.
Being good with money is all about good habits. The only thing that seems to separate those people that find Financial Freedom early and those who struggle to make ends meet is the habits that they have formed around money.
Like anything that is ‘healthy’ saving money is a habit that has to be built into your day to day routine.
A regular savings account generally requires a monthly deposit on the same day each month – forcing you to get into the savings habit.
The great thing about habits is that once you have formed them, they are very hard to break. That’s a really good thing so long as the habit is a healthy one.
When I first set up my regular saver account, it felt quite scary to commit to a big monthly savings payment each month. Now I have had regular savings set up for years and it would feel really strange not to be making those payments.
As your savings rate increases, you might have to take more control over the volume and timing of payments into your accounts, but a regular savings account is a great way to get started.
Most cash savings accounts currently only pay around 1% interest (which is really bad when inflation is running at 2.5 – 3%, meaning you are actually losing money in real terms).
Regular savings accounts on the other hand have interest rates of 5% and higher in some cases. While 5% is not absolutely spectacular (you could expect 7% or more on average in the long run on stock market), it is very, very respectable, especially for a cash account that does not have any risk attached to it.
It is also a guaranteed rate of return, unlike on the stock market which has variable returns over time.
Sometimes, the reason we don’t take action on something is that we are too busy researching and procrastinating over all the different options. This can be especially true when it comes to investments.
“Should I invest in an ETF or a mutual fund?”
“Should I use an active or a tracker investment?”
“Which broker is the best?”
There are so many choices when it comes to investments, that I have met some people who have spent years just trying to make their mind up.
While doing some research is always a good idea, there has to come a time when you make a decision or you will never get anywhere.
The good news for those of you who like to take your time on decision making is that a regular saver account can be a great way to ‘park’ cash until you are ready to make a decision on where to invest the money for the long term.
Most regular savings accounts have a fixed term of a year. This means that if you are really busy right now and just want to get started with your savings, then you can set up a regular saver account and you then have a whole year to make a final decision on where to invest the money.
I kind of do this each year. I pay the maximum amount into a regular saver for my wife and I and they both mature just before Christmas. I use my spare time over the holidays to do a bit of research and then decide on which investments to choose for the cash.
Oh … and I always start a new regular saver for next year as well.
In the UK, you can get a great regular savings rate of up to 5% from several banks including First Direct and HSBC.
In the US, high rate regular savings accounts are a little harder to come by, however there are some offshore accounts with good protection schemes in place. You can read about them here.
If you want to know more about paying yourself first, then I suggest you read Rich Dad, Poor Dad. It is one of the defining personal finance books and it still a best-seller 20 years+ after launch. You can pick up a copy here.