Remember when you would save money in your piggy bank? Or keeping a secret stash hidden between the pages of your notebook?
Yes, you’ve probably come a long way since then. Saving for the future is as important to you now, as it was when you were a child.
Everyone needs a financial safety net, and you must do that by saving when you can and the best time is to start now. Growing up you may have started writing down your expenses or keeping a note of where you want to spend your money. You do the same as you’ve grown up, just that it’s on a bigger scale
We caught up with Nupur Joshi, who completed her Master’s In Enterprise Risk from Columbia University and is currently working as a Management Consultant with EY, Times Square.
Speaking about the importance of saving money, Nupur says, “First and foremost, savings are important to prepare for a rainy day. If one has cash set aside during emergencies, it is less stressful financially. But that is not the only purpose of saving money. Saving money is also important to prepare for the future and to build wealth. When it comes to how soon one should start saving, the best answer would be as soon as possible. Since money compounds over a period of time, it is important to start saving early to take advantage of the magic of compounding.”
Breaking down the saving plans let’s try to understand why savings are important and how you can start saving money for your future plans. You can set your saving goals by deciding if it’s long-term or short-term. Long-term savings may be for the down payment of a home, your child’s education, retirement, and these are goals that are 4+ years. Short-term savings are for less than 4 years where your goals may include an emergency fund (3-9 months of living expenses), a vacation, or a down payment for a car.
You can achieve these financial goals through timely deposits such as a savings bank account, current deposit account, fixed deposit account, recurring deposit account. We have explained the terms below: –
Savings Bank Account
This is a type of account that is suitable for people with a definite and stable income. You can open this account with a minimum initial deposit which varies from bank to bank. You can be deposit money at any time in this account. Interest is earned on the balance deposit and a minimum balance has to be maintained. All of these factors vary from each bank.
Current Deposit Account
It is similar to a savings bank account except that the bank does not pay interest on the balance amount. Rather the holder pays an amount every year to the bank as an operational charge. The savings bank account may have restrictions on them, this type of account is suitable for companies, businessmen, and institutions such as colleges.
Fixed Deposit Account
Some people may need to put away their money for a long period of time. When you deposit money in a savings bank account, banks provide a low interest rate. When you deposit money in a Fixed Deposit, you earn a higher interest rate. This specified period of time may range from 15 days to 3 years or even longer. On request you may encash the amount, but with a lower rate of interest.
Recurring Deposit Account
While opening a recurring deposit account, the person agrees to deposit the money for short periods of time. The total amount of interest is then payable on maturity. However, the depositor is allowed to close the account before the specified period and take whatever interest is available before that time period.
The importance of saving money is very simple, it allows you to enjoy greater security in your life. You have a fallback to setbacks in case of something unexpected were to happen.
There are more ways in which one can preserve and increase their wealth. This can be done through gold deposits, mutual funds but that’s for another time.
The sooner you save the better it is.