One important thing saving is in a financial plan. It is not only an assistant in setting up your emergency fund but also ensures that smaller financial targets are achieved and allows investment in the long run.
But as a Savings Account is opened online, it can take a little reading (it can take a while reading) to understand what the optimal balance should be. In this guide, we will cover several factors to consider when deciding how much you will need to deposit, the objective being to help you provide a clearer picture of your financial situation.
Emergency funds: Your ability to build your emergency fund has become integral to having a savings account. Generally, you’ll want at least 3–6 months of expenses saved in an emergency fund. This can be useful considering unanticipated financial conditions such as sudden job loss or unexpected medical bills.
Goals: Everyone has some goal for their money — whether saving for a trip, down payment on a house — anything really, and a Savings Account is the BEST tool to help you get there. A Savings Account can help you stay on track when properly incorporated into your business plan.
Income and costs: Your income and outgoings will affect how much you can stash away. Recording your income and expenses also lets you know where to reduce and save even more.
Interest rates: Rates offered by savings accounts can vary a lot. So, if rates are higher at any time now, your savings will increase at an accelerated rate, thus allowing you to attain your financial targets earlier.
2 Best Ways to Budget
Having looked at some factors that affect your Savings Account balance, it is high time you exercise effective budgeting. Here are two powerful methods that offer a level of structure around income and expenses, enabling better savings rates:
The 50/30/20 rule of Sen. Elizabeth Warren
Popularised by US Senator Elizabeth Warren, the 50/30/20 rule provides a no-fuss framework for dividing your finances up. That’s where this style of budgeting comes in and divides your income into three buckets:
50% for fixed costs — This portion of the budget funds the items you need to survive, such as your rent or mortgage, utilities and transportation. These are relatively steady costs, so this is still your most capitalised budget.
30% for discretionary spending — Non-essential purchases such as dining out, entertainment and shopping. That would allow you to be a little more flexible and personalised. You will even reduce or eliminate these costs or save the extra every month in prune and use it to save.
20% for financial goals: This portion is reserved for objectives you might have for savings in the future, like retirement, emergency funds and other long- or short-term financial goals.
Dave Ramsey’s debt-free method
Dave Ramsey proposed a budgeting strategy that strongly focuses on clearing debt and becoming financially free. His system is based on dividing income by certain percentages.
| Utilities | 5 % – 10 % |
| Health | 5 % – 10 % |
| Recreation/Entertainment | 5 % – 10 % |
| Charitable giving | 10 % – 15 % |
| Savings | 10 % – 15 % |
| Food | 10 % – 15 % |
| Transportation | 10 % – 15 % |
| Insurance | 10 % – 15 % |
| Personal spending | 10 % – 15 % |
| Housing | 20 % – 30 % |
Conclusion
After you open Savings Account online, deciding how much to keep can be influenced by several factors, including your finances, income, and emergency funds.
However, you may use this information as a guide to help you financially prepare for the big purchase closer to your destination.
