How Much are You Saving?
Believe it or not, by saving just a little bit more and choosing the right savings vehicle, you can end up saving big over a period of time. Right now the average personal savings rate is 5.3%. If you’re the average American that makes $49,777 after taxes, then you’re looking approximately $2,638 in yearly savings. If you’re putting your money into a standard savings account, you’re probably getting 0.51% in interest on your money, which could build you a nest egg of $27,058 in ten years and earn $658 in interest.
It doesn’t seem like much, does it? However, that’s because a standard savings account doesn’t offer a high interest rate. However, if you put your money away in a savings vehicle that can earn you more, such as a CD, you’re looking at more savings:
- 1 yr CD – 1.05% ($27,0810 in ten years and earn $1,430 in interest)
- 5 yr CD – 2.26% ($29,604 in ten years and earn $3,224 in interest)
The negative of putting your money in a CD is that you can’t touch that money for emergencies without incurring a penalty so make sure that you’re comfortable putting that money away. If you’re curious how much you can save by putting a little money way, try our Simple Savings Calculator located under the Tools section.
What if you put that extra money into paying off your credit cards?
Oftentimes, we divide and conquer ourselves when managing our personal finances. For example, if you are putting away money every month into a savings account, but you’re only making minimum payments on your credit cards, then you could be losing money over the long haul.
If you have a credit card that has an $8,000 balance with a 19% APR, and making monthly payments of $225, it would take you a little over 4 years to payoff that credit card. You’d end up paying $3,855 in interest. However, if you put that $220 dollars that you’re putting in savings towards paying off your credit cards, then you could pay off that debt in less than 2 years and only pay $1,488 in interest.
You’d save $2,367 in interest, and have more money to put in savings after paying off your debt. There are some programs, like debt management, that can help you save even more on your interest and monthly payments.
The bottom line is, know what you’re spending and saving. Make sure you’re getting the most out of your savings. Once you have a small emergency fun in place, get rid of your high interest debts first, before putting more money away.
About the Author
The following post is from Kathryn Katz, a Certified Personal Finance Counselor who works for Consolidated Credit in Ft. Lauderdale, Florida. Their non-profit agency helps families through financial crisis using credit counseling, debt consolidation and financial education.