Savings are not only a source of financial security but also an opportunity to earn appreciable income. For you to achieve your set retirement target, savings alone are never enough. There is a need to grow and compound these savings, as the value of money depreciates with economic advancement and inflation. There are proven tips and tricks which can be used to grow your savings account. These involve:
Set your priorities right
Creating a realistic budget with a well-defined priority is as important as savings. This is because no matter how amazing your budget, the chances that you will actually stick to the budget are quite slim without specific savings goals. Goals such as getting ready for contingencies or fulfilling a dream or desire could also be a driving force to more savings and your savings account growth. However, it is imperative that your savings budget is realistic and the targets are not too high.
Automate your savings
At times, the challenge most people face in growing their savings account is with discipline. An individual who faces savings because of poor financial discipline can save the situation by utilizing an automated payroll savings plan or standing instruction with the bank. Automating your savings solves the problem of giving into temptation to spend money or forgetting to put money in the savings account.
Don’t allow your savings sit in the bank
Idling your savings in your bank account is unproductive. This is because the value of money depreciates one to five per cent in line with the economy and inflation. Therefore, investing these savings in the money or capital market provides the opportunity to grow these funds at the same rate as the economy or inflation.
Savings that are not immediately required should be transfered from a regular savings account to high-interest yielding investment account. And, where such fund will be needed for current liquidity, investment in a highly liquid fund such as a mutual fund is advisable. You can also stagger the maturity dates of the term deposits such that one is always coming due shortly in order to cover yourself in emergencies.
Enquire about different options, associated risks
It is also imperative to explore a variety of options to invest your hard-earned money to maximize your returns. Various options available with the banks and the capital market include fixed/term deposits, savings deposits, stocks, bonds, mutual funds, exchange traded funds and real estate.
While searching for these great options, it is important you enquire about the associated risks also because every investment has certain degree of risk. It is necessary you ask questions especially if you are new to investing. For instance, fixed and savings deposits guarantee capital. On the other hand, capital market investment which provide higher returns are comparatively riskier.
Real estate are considered to be a profitable investment but property values can be affected by external factors such as interest rates, changes in local business conditions etc. In addition, the capital gains are subjected to income tax. On the other hand, equity mutual funds are considered the best opportunity for long-term growth because there’s no limit to the future value of their earnings.
Diversify your investments
It is not advisable to put all your savings in one type of investment hence the age-old maxim, “do not put all your eggs in one basket”. Fixed term deposits which have a guaranteed rate of return could have their value could be eroded by inflation. It is desirable to have a portion of your portfolio in investments that increase in value, such as mutual funds or stocks. For the small investor, mutual funds are the simplest way to diversify.
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