Selecting the Right Savings Strategy [GUEST POST]
This is a guest post by personal finance blogger, “Little House” of Little House in the Valley
Setting up subcategories to save for specific goals
The latest recession has positively impacted the savings rate of Americans. The average amount of disposable income that was saved in 2006 was 2.6% compared to 5.3% in 2010. That’s a huge improvement, but saving 5.3% of a person’s disposable income is still a paltry amount. As a nation, we seem to be on the right track, but I’m going to take a gander and assume that people would like to do better. One way to push our personal savings rate higher is to state specific goals and have a plan.
Before a solution can be found to any problem, the reasons need to be identified. One problem I’ve encountered myself seems to be that if our goal for saving isn’t very specific, it’s much too easy to justify dipping into the savings account and withdrawing a chunk of dough. How many times have you saved up a nice little sum of money in your savings account, but one random day decide to spend it? Without stating a specific goal such as “summer vacation money” it’s easy to spend that money on random items.
Another reason our savings accounts may not be as copious as we’d like them to be is we lose our purpose for saving. Saving money for various reasons in one account seems to tax our mental math abilities. For instance, if your goal is to save for a trip in the summer, save for plumbing repairs, and your cousin’s wedding all within one account the likelihood of being able to mentally keep track of which amount went to which purpose becomes hazy at best.
Solutions to both problems boil down to becoming more organized with our finances. To resolve our disorganized ways, one solution is to open a savings account for each purpose or savings goal. For those who may already have multiple savings accounts, like myself, this might be a good choice. Using an excel spreadsheet or a program like Quicken, you can label each account with a specific goal in mind. Each time you budget out a portion of your income for savings, you decide which goal needs to be met first and deposit it in the correct account. However, this seems a bit cumbersome for a person who doesn’t want to open multiple accounts or keep track of accounts in an external program.
An excellent alternative to opening a multitude of bank accounts is to open up a savings account that allows sub accounts. Sub accounts are technically separate accounts, but easily manageable within one main account page. You can nickname your sub accounts with specific goals in mind and make deposits accordingly. Few banks offer this option, but one online bank that makes sub accounts easy is ING Direct Orange Savings Account. ING Orange also offers one of the highest interest rates as well at 1.0%. If you’re not sure which bank you should choose to open your savings account, FindaBetterBank.com helps narrow down the choices for you based on the features you select.
Defining your savings goals and organizing how you’ll fund each one can be accomplished with a little labeling and financial housekeeping.
