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The Sandy Spring Way

How to Develop a Savings Plan and Grow Your Wealth

February 26th, 2013 | By Beau Mercer

Become Smarter About Saving:

How to Develop a Savings Plan and Grow Your Wealth


Couple-2Learning how to save money is key to financial security, reaching important financial goals, and enjoying your retirement. Unfortunately, many Americans do not save enough and are unprepared for life’s unexpected circumstances. According to a recent report by the Corporation for Enterprise Development, approximately 44% of Americans could not last for more than three months without income in the event of a job loss or other crisis. Secure yourself, your family and your future by following this guide on how to become smarter about saving.



#1. Develop Your Savings Strategy

Most people start out by opening a savings account which can suffice for basic savings needs. As your financial situation changes and your savings balance grows, you may be able to benefit from additional savings options that can increase your returns and solve for specific financial needs. Here is an example of a three-tiered savings strategy using three different vehicles:

Start Basic: Everyone should have a basic savings account for short term needs. These accounts require a minimal amount to start and can be linked to a checking account for easy transfer of funds, to and from. They generally offer the lowest interest rates; however, they provide greater access to funds.

Earn Higher Rates: Once you have accumulated a sufficient short term fund, you could have your savings that exceed a target threshold transferred into a money market account. Money market interest rates tend to be higher than savings rates, while still providing access to your funds. Most money market accounts require a higher minimum deposit and also have minimum balance requirements, so these should be used for longer term needs.

Think Long-Term: With a short term savings and a money market account as your liquidity cushion, you could then consider a Certificate of Deposit for higher returns. CDs are time deposits of varying maturities. The longer the term of the deposit, generally the higher the interest rate that is earned.


#2. Build a Savings Cushion

Saving money can sometimes seem almost impossible. Unexpected expenses or the temptation to spend can make even the best plans to save unsuccessful. Yet having a financial cushion is one of the most important things you can do to feel financially secure. Here are some ideas that may help:

  • Contribute to your retirement plan at work. Many companies offer employees the opportunity to defer income into a 401(k) plan and will also help with a matching contribution of some level.
  • Reduce high interest rate debt. If you are paying interest on credit cards or some other loan that has a high interest rate, find a way to pay it off. Interest rates in the teens make it hard to get ahead of the minimum monthly payment required. You might also consider finding another credit card with a lower interest rate.
  • Change your expensive vacation plans; as much as you may look forward to a lovely trip, consider staying home, visiting relatives or going somewhere less expensive.
  • Find a more affordable apartment. A less expensive place to live, even temporarily, can help you save some money quickly.

Saving money is usually a case of self-discipline. It may be hard, but having a savings cushion can provide financial peace of mind and a source of funds when needed.


#3. Use Automatic Savings Programs to Reach Your Financial Goals

One of the simplest and most effective tools you can use for almost any savings goal is an automatic savings plan. Automatic savings programs generally come in two forms; your employer deducts a certain amount from each paycheck and deposits it into a specific account or your financial institution moves a certain amount from your checking account into a savings account on a regular basis. These automatic transfers add discipline to your saving.

People with these plans find they do not even notice the smaller amount they have to spend each month. Start putting automatic savings plans to work for you:

  • Fund your 2012 IRA contribution (you have until April 15th, 2013). The contribution limit for 2012 is $5,000 for both regular and Roth IRAs ($6,000 if you are age 50 or older). The maximum IRA contribution for 2013 increased to $5,500 ($6,500 if you are age 50 or older).
  • Fund an even larger amount for your retirement. If you are already taking advantage of your employer’s retirement plan and an IRA, you can transfer even more into a savings account each month. When the balance reaches a certain level, say $5,000, transfer the funds into a Certificate Deposit to earn higher rates.
  • Save for your children’s college educations. Determine the amount you want to set aside for each child, establish a custodial account for the child and have that amount transferred each month. Even small monthly transfers add up over time with interest.
  • Use an automatic savings plan for estate planning purposes. Older and wealthier individuals often want to transfer funds to heirs during their lives to reduce their ultimate taxable estate and to provide heirs with more immediate funds. Up to $13,000 per year can be transferred to an individual without triggering gift taxes. If both a husband and wife want to make gifts, the total can be up to $26,000 per person. If this is something you want to consider, be sure to talk to your tax advisor. Over a relatively short period of time, one couple can transfer a great deal of money to their children (and grandchildren) to help manage their estate.

Taking actions to regularly save or transfer money can be easily delayed or forgotten. Having your financial institution do it for you can make the process easier and more effective.

You will feel grateful in the future if you put plans in place to save money now. Visit https://www.sandyspringbank.com/personal-banking/savings.aspx or call 800-399-5919 to learn more about how Sandy Spring Bank can help you with your savings needs.


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