So, you’ve set up a budget and you’re making it through the month just fine. You even have a little extra left over for dinner out. Then, a car repair costs you an extra $300 and suddenly you are behind again. Unexpected expenses are a part of life, which is why a savings account is essential to financial health. Plus, you’ll need to save for large purchases such as a down payment on a home, college tuition or a new car.
While buying things on credit is sometimes unavoidable, saving for purchases and paying up front can save you hundreds of thousands of dollars in interest fees over your lifetime. For example, say you buy a used car for $10,000 and plan to pay it off at 7 percent interest over the course of 5 years. You will end up paying $1,880.72 in interest over the course of the loan, which is more than 18 percent of the original cost of the car.
| $10,000 PRICE OF USED CAR |
7% INTEREST RATE |
5 YRS. TIME TO PAY OFF |
| $1,880.72 INTEREST OVER THE COURSE OF THE LOAN (EQUIVALENT TO MORE THAN 18% OF THE ORIGINAL PRICE)
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| FIVE TIPS FOR STARTING TO SAVING: |
| KEEP THE CHANGE, Save all of your loose change in a jar and deposit it every week. |
| SAY NO TO CAFFEINE, Stop purchasing coffee or soft drinks each day and place that money in savings. |
| PERSONAL PAYDAY FIRST, Pay yourself first when you get paid. Most savings accounts allow for automatic deposits each month from your checking account. |
| FIRST STEP, To jumpstart your savings, use a tax refund or bonus for start-up money. |
| SET A MONTHLY GOAL, Use a big purchase to set a monthly goal. Want to save $10,000 for a down payment on a home five years from now? You'll need to set aside $167 a month. |