Regular savings plans are popular in Asia. Part of the reason maybe because it’s easier to build up a saving habit when you’re young.
Savings accounts for minors (under 18) often earn higher interest rates because they don’t pose any significant risks to the banks. Minors lack an understanding of their banking habits and are less likely to take out credit cards or overdrafts than adults. Although interest rates can vary between institutions, some banks offer as high as 1% on minor savings accounts.
The need for a regular savings plan is not always obvious. However, it can help you save hundreds of dollars in just one short year when done right.
Let’s take an example by looking at the salary of Joe Smith, who earns $3 000 per month. It means that $2 500 is available to pay for everything he needs in life (rent/mortgage + utilities + insurance + groceries + transportation costs).
How do savings plans work?
Savings plans work if you dedicate some part of your money specifically to them so that they grow over time and serve their purpose sooner rather than later. With our $2 500 starting figure, let’s see how much we can put into saving per month.
One way of doing it is to divide the $2 500 by four months. It means that Joe Smith would have approximately $625 available for monthly savings.
Look at salary as a weekly amount
Another way would be to look at the salary as weekly, which results in about $500 per month after deductions. Out of this amount, you can choose to put aside some money for savings every week until you reach your target number of saved dollars over time. Then, continue putting away a set amount regularly to don’t fall into old spending habits.
High-yield bank accounts
You can also consider high-yield bank accounts where you keep your savings and leave them there without touching them often (e.g. HSBC Direct), much like you would with stocks. These are usually interest-bearing accounts that allow you to add more money in time and even add through electronic means.
Once you have a regular savings plan in place, it is essential to stick with it so that the amount of money saved grows over time and serves its purpose: to provide or supplement your income when you retire. It would be best to keep reminding yourself of why you wanted this savings plan in the first place and how it will help you reach your goals.
One final piece of advice is to avoid withdrawing from these accounts unless necessary – such as in emergencies. That way, they build up nicely rather than just losing value gradually due to inflation not being offset by interest rate gains on such accounts.
However, if after all this thinking about putting some money aside for yourself every month, you find that your budget can’t afford it for whatever reason, then there are a couple of things to keep in mind.
One is that life will be full of ups and downs, where one month you have more money available than the next due to unexpected circumstances. It means that if you have savings from other sources – such as an emergency fund – then you can use those instead of dipping into your regular plan.
The bottom line is that if you realize that you really cannot put anything away for whatever reason at any time during this regular-savings process, even with best intentions, it’s probably wiser not to start at all than failing at all sticking with it until the end. If this happens, think of alternative solutions that you can implement instead and then come back to the regular-savings idea when your situation changes.
In a nutshell, a regular savings plan is an excellent way of saving money automatically so that it doesn’t burn a hole in your pocket and hurt you financially. It’s best if you have the discipline to stick with this plan over time – even if things get challenging so that you don’t fall into old habits, try it out here.