A part of all you earn is yours to keep… Pay yourself first.
George Clason, The Richest Man in Babylon
Saving may sound boring, but you will thank yourself when the time comes to break the piggy bank. A savings account is a simple way to ease the stress of money. In my opinion this is the first step to financial freedom. When your car inevitably breaks down or your instrument requires repair the mighty savings account will be there to swoop in and soothe the pain. What once would ruin your life and finances is reduced to a mild disturbance in your day.
A savings account acts as an emergency fund when life happens.
Average interest rates sit around 1% yearly which means if you have $100 in a savings account for one full year the account will earn $1 equaling $101. If you are thinking “wow, that’s a really low return” you are correct. Compared to the average inflation rate of 2-3% (some will argue higher) your savings account actually loses value every year. This is unfortunate, but a savings account is simply for emergencies.
Why start a savings account?
Saving is a great starting point for anyone wanting to achieve financial freedom. This practice builds financial confidence and safety for emergencies. Anyone can start saving no matter their income level and it’s easy to get started. Also, the economy can and will shift over time so you might see interest rates rise.
Ideally one should consider implementing a saving regiment as soon as possible. Any form of income will allow you to start saving regularly. Most financial institutions, credit unions, or banks will open your savings account for free.
An easy way to get started is to determine your goal. Those with one job might consider having 6 months of expenses saved in case they lose their job and need to live off savings while looking for another job. Musicians typically have multiple streams of income, but should still consider injuries, moving to another city, etc. when determining their savings goal. There is no right or wrong amount, this is simply an amount that comforts you. Some are okay with 1 month of expenses and others want a full years worth!
The secret to saving
After you determine your goal, set up a monthly automatic deposit system into your savings account. A good rule of thumb is 10% of your income goes into your savings monthly, but again this is to your discretion. You can start at 1% and slowly work up to 10% and maybe even go up to 20%. The automatic deposit is critical because you won’t notice it and therefore won’t have the urge to spend that money. Once you reach your goal, you can end auto deposits and start putting that money somewhere else!
It is my opinion that everyone and anyone can and should start saving. This was my first step and was incredibly easy to implement. I no longer worry when emergencies happen, because I know years ago I took that baby step towards financial security.