There are easy ways to make your money grow. Here's how to build a substantial nest egg for the future.
Saving money is a simple concept. All you need to do is spend less than you earn and put the difference into an interest-bearing account. Yet many Americans, even those with healthy incomes, have no savings at all.
A solid financial plan should include retirement savings, a rainy day fund and an account that you can dip into for such extras as holiday shopping or an annual vacation. Fortunately, there are now more savings options than ever before. Here are some easy tips to help you make smart savings choices.
Start saving and watch your money grow
Successful saving doesn't have to involve setting aside huge amounts of money; even small amounts will grow large if given enough time. When you invest your money, you not only earn interest on your deposits, you also earn interest on the interest. This is called compounding, and over long periods it can pay huge returns.
As an example, imagine that you deposit $5,000 in an account that pays 5 percent interest. In the first year, you would earn $250. In the second year, because your balance is now $5,250, you would earn $263 in interest. That's a small difference, but over time it would increase substantially. By year 25, you'd earn over $800 in interest and your $5,000 will have become almost $17,000 -- more than triple your initial deposit.
No pain, big gain
In the example above, we imagined that you had $5,000 to deposit all at once. Of course, most people don't have that kind of cash handy; instead, they tuck a little away every month. This is an excellent way to save, as long as you do so as soon as you get your paycheck. Some people try to save by waiting to see how much they have left over at the end of the month. But the truth is that most of us will spend any extra money we earn if we don't lock it away as soon as we receive it.
A good idea is to set up an automatic transfer from your checking account to a savings account once or twice a month, or however often you get paid. By "paying yourself first," you'll never be tempted to spend instead of save, and chances are you won't even miss the money. Web-based high-yield savings accounts make these automatic contributions easy to set up.
Then sit back and watch compound interest work its magic. If you contribute just $100 from each biweekly paycheck to a savings account that pays 5 percent interest, it will grow to more than $5,200 in two years. In 10 years, your simple savings plan will have built you a nest egg of almost $34,000.
The many ways to save
One of the most important parts of a financial plan is putting aside money for retirement. There are several products available to help you reach these goals:
Rather than visiting a bank branch and making deposits with a teller or an ATM, you link a high-yield savings account to your everyday checking account and transfer money electronically. In most cases, you won't be able to access your money with an ATM card or by writing checks. But the trade-off is that online accounts cost less to administer, so financial institutions can offer you higher rates and no fees.
Here's a list of personal budget stretchers. While you may already be doing a lot of these things, I guarantee you'll find at least a few new ideas to add to your growing arsenal.
I have read several articles that tell you how you can save money after you buy a certain product. I myself have even written articles about products that save you money. But, what if you could save money without spending any money?