Saving, is one of the few things in life that people don’t take an interest in until it is too late. Before this recession the average saving rate was 16% (Business Week), however it is hard to save during a recession and is down between 4-5% now (Money Rate). Which doesn’t really make sense, in times of economic trouble people are preparing less for unemployment!? If anything you should cut costs and save more if you are uncertain if you will have a job next month.
The main reason why I didn’t start a savings when I was a kid was that I didn’t think I made enough for a savings to really have any effect on my life. Looking back, saving 10% of the 15,000 per year, I could have saved $5,000 over 5 years, or $16,000 over 10 years (factoring in a 5% interest rate). Interest scales with the money; you literally get paid money for just having money, and the more you have the more you get. It’s a weird but very cool fact if you are on the “savings” side of the fence.
Ok so lets jump on the other side of savings, your taking out a massive loan; your 30-year mortgage (house). The mortgage is 300K and the current Interest rate is around 5% (HSH); by the time you pay off this house you will have paid around 600K, the price of two houses. Why? Well your first few years of owning that house will consist of interest payments above $1000. The first month would be $1,250; meaning that up to that amount you are only paying the bank, not your actual house. Get in the mindset of if i saved $200 this month than that will equal $1500 when I want to buy a house. So don’t wait, start your “30 years” today.
An easy tip to avoid those “bad purchases”: Before making a purchase ask yourself if a stranger offered you the same amount of money for the item to NOT purchase it, would you take the cash or buy it anyways.
At the time of publishing, Discover Bank, has the “best savings” account; it yields 2% interest per year, if you don’t have a large sum of money to invest with, this is your best option. If you don’t have a bank account, try to get one; however if for what ever reason you can’t, saving is still smart. You will start off with a large sum of money, which means your first “interest paycheck” will be higher than if you didn’t save. Interest is only really beneficial with “chunks” of cash.