Save to Spend

Think about things you want in the next few months, the next year, and beyond.  Do you want to buy a laptop or a car?  Or are you planning to travel, go to school, or rent an apartment?

The first step is to put your goals in writing.  Then it’s time to create a spending plan to give yourself enough money to meet your everyday expenses, while helping you save for both your short – and – long term goals.

Five Steps to Smart Saving and Spending

1. Get a true picture of how you spend your money.  To help find where your money goes, save all your receipts or carry a notepad with you to jot down all purchase for at least two weeks.  Then group your expenses into categories, such as entertainment, transportation, food, and gifts.  Figure out how much you’re spending each week, month, and year.
2. Make a list of your income.  Write down what you earn from allowances, jobs, and gifts as soon as you get it.  Calculate what you make each week, month, and year.
3. Evaluate your situation.  Do your income and expenses even out?  Are you spending more than you’re making?  Or do you have money to spare?
4. Create a spending plan. Figure out how much you need to save each month to reach your goals.  Then decide how you’ll come up with this money.  When making your plan, it’s better to figure you’ll spend a little more and make a little less than you think.  Look for some easy ways to save, like brown bagging it for lunch or cutting back on entertainment or clothing.  Remember, even saving $1 a day will give you $365 a year to put toward your goals.
5. Put your plan into action.  For one month, try to make your actual spending match your plan.  Do you have enough money to save for your goals?  If not, make some adjustments and repeat this step.  You can decide to work more, spend less, or set a more realistic target date.  Once you reach a goal review your plan and tailor it to fit your next savings goal.

Understanding the Terms

Now that you’ve put your spending plan into act ion, you’re ready to start saving.  Your saving will give you the power to get what you want.  The big advantage of a savings account is that your money is working for you by earning interest, or dividends, which in a credit union is essentially the same thing.  Interest is the amount of money you earn on your account balance.

• Compounding: Your initial deposit earns interest that is added to your account balance.  Interest is then earned on that new balance.  Interest may be compounded daily, monthly, quarterly, semiannually, or annually.
• Annual Percentage Yield:  APY represents the total amount of interest you receive if you leave a certain amount of money in an account for a full year or for the term of the account for a share certificate.  The APY factors in the effects of compounding – the more often the account pays interest, the more money you’ll make.  Besides the APY, financial institutions must give you information about minimum balance requirements, fees, and penalties for early withdrawals of certificates.

Where to Keep Your Savings

• Savings accounts keep your money safe and readily available.  The most common type is a statement account that reports transactions to you monthly or quarterly. Credit union share savings accounts are insured by the federal government and private deposit insurance, pay interest (called dividends) that is comparable to, or better than, the interest paid on savings accounts elsewhere.
• Money market accounts, available at credit unions, are another type of insured savings account.  There’s no requirement for how long you have to keep your money on deposit, and they generally pay higher interest than regular savings accounts since they typically require a minimum balance of $1,000 or more.
• Certificates (called share certificates at credit unions or certificates of deposit) generally pay higher interest rates tan savings or money market accounts in exchange for an agreement to leave your money on deposit for a specific length of time.  Certificate terms generally range from several months to five years – the longer the term, the higher the interest rate.  If you withdraw your money before the term is up, you’ll have to pay an interest penalty.  Certificates, which are insured, typically require minimum deposits ranging from $500 - $5,000.

Strategies for Success

• Discuss your spending plan with family members, friends, or the people at the credit union.  They might notice things you’ve missed or be able to offer some creative ideas based on their experiences.
• Review what you charge for your work.  If you’ve been working for the same hourly rate for more than a year, consider asking for a raise or getting a different job.  Be fair, but don’t sell yourself short.
• Break down your expenses into as much detail as possible.  For example, look in your closet and make a list of what you’ll need for each season and what each item will probably cost.
• Slow down your spending.  Leave extra cash at home, don’t buy on impulse, and don’t borrow from friends or get advances on your paycheck.