The following article is a guest post.
I was only 14 when I opened up my very first savings account. It was a special type of custodial account: I was allowed to make deposits but no withdrawals (except if it was to close the account completely).
I saved and saved all summer long with one specific goal in mind — to have enough money to buy brand new clothes for my very first year in high school. With determination and discipline I reached my goal at the young age of 14 and repeated the process many times after that.
You can do the same no matter your age or motivation. All you need to successfully build up a personal savings account is a) a S.M.A.R.T. personal goal and b) a plan tailored to your unique situation.
What Is Your Goal?
My goal was very simple and reflective of my youthful mindset at that time. What is your station and life and what is your savings goal? Do you want to save enough money to buy a new car? Reduce your debt? Give someone you love a very special gift
Write your goal down on a sheet of paper or a spreadsheet and then ask yourself if it is S.M.A.R.T. — specific, measurable, attainable, relevant and timed. It is important to have a realistic, clearly outlined savings goal in mind that you can actually achieve considering your resources. For instance, setting a goal to save $1 million within the next few months to buy a yacht when you make $40,000 a year is not S.M.A.R.T. Saving $4,000 over the next 12 months to purchase a used Honda Accord is a much more balanced and achievable goal.
Create a Plan
Next you need an action plan to reach the savings goal you set. At 14 I started off by estimating the amount of money I would take home each week based on my hourly rate and hours worked per week (I was very meticulous at that age). Then I subtracted that amount from my meager expenses at the time to decide how much I could put aside each check.
So take a moment to run through your budget and figure out how much you can afford to save. Divide the total savings goal by the amount you’ll put aside each month to determine how many months it will take to reach that balance. Write down what you will save each month or pay day next to the goal you defined.
Choose a Savings Vehicle
Now that you have a goal and a plan, you need a place to store your money. You have a number of choices — you can open a traditional savings account at a local bank, a money market account (for very large balances), a direct online savings account or a certificate of deposit account. Choose the account type that offers you the best interest yield (interest the bank pays you) and the most convenience for your needs.
Direct online savings accounts often have better rates than traditional brick and mortar banks. Generally, certificate of deposit accounts (which you can open either online or at a local bank) have the highest yields. If you prefer to save at a traditional bank, open an account at a credit union for the best yields.
Use Personal Savings for Deposits Only
If you’re seriously committed to building up your savings the best rule of thumb is to make it as difficult as possible to access your cash, so apply for a “passbook” style savings account. With a passbook account you do not have a debit card, ATM card or any other method of making quick withdrawals. You must go to the bank to perform all transactions — the teller will record each transaction in a passbook or on a printed statement.
An online savings account is also helpful because you must put in your transaction requests using a computer and you also have to wait two or more days for a withdrawal to process. That gives you some time to think over your decision.
Article provided by Jon Robinson- Consumer Financial Advocate for America’s Debt Help Organization, serving the public with authoritative information on a broad range of topics related to financial well-being.