Growing the money in your savings account is one way for you to be financially secure. We all know that saving can literally save your life but it depends on one factor – are you saving enough money?
In any endeavor, you do not just go through the motions to reach your goal. You need to plan and make the necessary calculations to ensure that your efforts are not wasted. Since you are already making the sacrifice and disciplining yourself to put aside money, you want to make sure that it will really make a difference in your life.
However, the statistics published on Bankrate.com seem to show that consumers are not saving enough. Their personal savings have declined over the years and it may not even be enough to keep up with the inflation rate. According to the data gathered by the website, Americans are saving approximately 4 cents to a dollar of their disposable income. It is half of what people in the 70s and 80s are storing in their reserve fund. With an inflation rate of 2.5%, the average personal savings is dismally small to make a difference in any financial need that will crop up in the future.
Why do experts say it is not enough to put your savings in a bank account?
While the effort is there to put more money in your bank account, you need to understand that simply putting aside a part of your income is not enough. You need to consider a lot of things like what you are saving for and where you will put your money. It is ridiculous to put aside money and then put it under your mattress. Believe it or not, people literally do that! That is a waste of you money. If you put $1,000 there, you will get only $1,000. There are places where you can put your money so it earns as you keep your hands off of it.
Some people think that putting their money in a savings account is a better alternative than the “mattress” saving method. While it is better, it is still not enough to make you financially secure.
Investopedia.com defines a savings account with the following descriptions:
A deposit account that is kept securely in a financial institution (e.g. bank).
An account that provide an interest rate that allows the deposited amount a small to moderate growth.
It may or may not allow the holder to write checks to take money from the account.
This is considered to be one of the best ways to store money while keeping it easy to liquidate.
This account is used to store the money that you do not need for your everyday expenses.
The interest rate that holders get from a savings account is lower than certificates of deposit and Treasury Bills.
The money in this account can be accessed via the institution, Internet or through Automated Teller Machines (ATM).
A savings account can provide the owner with security for their money, they are not getting as much growth as they should. This is the main reason why experts want consumers to think twice before relying entirely on this account to store their money. The idea is to put your money where it will benefit the most. If there is a better way, that is where you should consider putting your money.
When you are planning for major financial decisions that requires you to save money (e.g. retirement, college fund). You want to make sure that it grows at a rate that will help you achieve your goal.
Here’s a better way to make your money grow in your bank account
We are not saying that a savings account is bad. We just want to stress out that it is not enough. There are better places to consider. One of the best saving tip when you have a lot to save up for is to diversify your money. Put them in different accounts so you can see where it grows the most.
Here are two suggestions that we have for you to make your money grow best.
Increase your annual saving rate
First of all, you want to increase what you are putting aside. 4 cents to a dollar is not enough. If you really want to grow your savings account, you may want to commit a portion of your disposable income and put it into your savings. Do not pay your bills first before adding to your savings account. Do it the other way around. Some people save whatever is left after expenses and bills are satisfied. The smart way to do it is to spend what is left after your savings. If you have to alter your lifestyle to live within the limits of what is left, then that is what you have to do.
Remove it from your savings account
Yes you read that right. Take your money from that account and put it somewhere else where the interest rate is higher. This is our second suggestion. At least, take what you can afford to risk. Do not touch your emergency fund and the rest should be invested.
We firmly believe that this is the best way to put your money to good use – invest it. Saving goes beyond just opting not to spend a portion of your money. It is all about where you will grow it so it yields as much returns as you want. You have stocks, bonds, mutual funds – all of these are options that you have to look into. Each of them will give you returns that are higher than what a savings account can give you. The one with the highest risk is stocks but it also gives you the best return. Bonds will give you security but it pays the lowest interest rate. Mutual funds, on the other hand, give you diversity without the same risk as stocks will. Your funds will be handled by a money manager who will combine it with the funds of other investors. That allows the manager to buy stocks in high yield company stocks. Whatever is gained will be split among the other investors.
A million dollars in your savings? Not enough for retirement
The reason why we are scrutinizing savings account is because we know that it is not the most effective way to save for retirement.
Did you know that a million dollars is no longer enough to sustain you until the end of your retirement? At least, that is the fear of most experts. Here is a video that explains it further.
If you ignore the somewhat violent end of the video, you will see that it did a pretty good job at describing why a million dollars may not be enough as a retirement target. Simply put, you need to target more than 1 million on your savings account.
An article in NYTimes.com reports that retirees are in danger of outliving a retirement fund worth a million dollars. The article mentions that people think that this enough but with the inflation rate and the money market conditions, this may not be true. The article states that a 65 year old with $1 million in bonds has a 72% chance of outliving their money. This is true even if they withdraw only 4% of what they have every year.
Consider these facts carefully because you have to understand that saving is one of the most important habits that you need to continually do. But make sure that if you have to do it, you will do it right. And that means you need to look beyond your savings account when looking for places to store your money for the future.
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.