Why You Should Open a Personal Savings Account – What to Know
March 26, 2020When you are first employed and start getting a regular salary, the first piece of advice you might hear is that you should have a savings account. Your workplace might provide you with a payroll ATM card, or you might even have a checking account or a debit card, but these should all be separate from your savings.
Most people approach savings in a carefree way. As soon as they get their salary for the month, they pay off the bills, treat themselves out to a dinner or a new purchase, and put whatever is left in the bank. This is not the best way to go about things.
In fact, financial planners recommend the opposite. When you get a sum, the first deduction should go toward your savings, before the bills and incidental spending. Savings also give you a financial fallback in case you need to make a short term loan for a big expense. In this article, we give you reasons why you should set aside some money for a separate savings account.
1. Pay yourself first
When you have a savings account, you ‘pay yourself.’ This means you earmark a percentage of your income for later purposes, mainly retirement. If your office has enrolled you in a retirement plan, it is still good to practice paying yourself. This is because job security today is not the same as it was in previous decades.
Even if you have a company that contributes to your retirement fund, you might not be employed there for your entire career. On average, job tenure lasts around 44-47 months in South Africa, a far cry from the 20-year tenures of our parents and grandparents. Paying yourself while employed gives you a retirement cushion.
More than saving for your future, paying yourself helps you develop money management skills. Even if you have a high-paying job, you would not become truly wealthy if you don’t know how to save and live within your means. Opening and maintaining a savings account helps you train yourself for other aspects of personal finance.
2. Earn passive income
Some vehicles such as time deposits help you accrue wealth over years. High-interest savings accounts make you money just by being in the bank. The more money you deposit, the higher your savings will get.
What’s more, if you are a conservative, risk-averse person, a savings account would not give you as much grief as stocks or bonds. A savings account gives smaller returns than riskier investments, but you protect your money better this way. The South African Reserve Bank insures up to R 100,000 per depositor, per bank.
3. Have an emergency fund
Everybody appreciates having rainy day funds. In the event of a major illness in the family, a sudden car repair or other unforeseen circumstance, it is good to have cash on hand that you won’t take from your monthly budget.
When you start earning your own money, you should set aside savings for accidents and similar unexpected events. Even if you do not want these things to happen, it is better to be prepared for them than to leave yourself in the lurch. Having a savings account gives you a buffer when it comes to expenses, and helps you manage whatever unexpected event life brings.
Conclusion
When you open a savings account, you make your monthly cash flow more secure. There are many ways personal savings can give you more financial security, from being a source of retirement or rainy day funds to training you for riskier finance decisions. For instance, you can mitigate your savings account with well-timed personal loans, to help shoulder costs of significant expenses such as tuition or car payments.
If you have other questions about how you can supplement your cash flow through loans, get in touch with us today. We are among South Africa’s fastest-growing brokers of online loans and we can help you secure your application quickly and safely. We help broker payday loans, short-term loans, and urgent cash loans among others. Get in touch with us to see how we can help.