Want to achieve Financial Well-being and build wealth? The answer is to start saving early and consistently. Saving means putting aside a portion of your income for future use. It’s usually the difference between your income and your expenses. For example, if you earn $100,000 a month and all your expenses add up to $90,000, then your savings would be $10,000. Some benefits you will enjoy as a disciplined saver include being able to afford the things you want, like a car or a house; having cash in an emergency; not having to depend on others; and being able to retire in comfort.
The interest paid on your savings is either Simple or Compound Interest. So, what’s the difference? Well Simple Interest is paid only on the money you save or invest (the principal), while Compound Interest is paid on your principal plus on any interest you have already earned. The younger you are, the more beneficial this will be for you. An account that pays Compound Interest is a great option to help you achieve your long-term goals, such as Saving for Retirement. Compound Interest helps you build wealth faster and has a greater effect on your savings over a longer period.
Types of Savings Accounts
When you’re ready to save, you will observe that there are different types of savings accounts.
- Regular Savings Accounts: Make deposits and withdrawals anytime by visiting a branch or electronically using a debit card or online banking.
- Contractual Savings Account: Save a fixed amount every month for a minimum period of one year.
- Certificate of Deposit: Funds remain untouched for set periods of time as they have specified fixed terms (usually 30, 180 or 365 days).
- Long-term Savings Account: Funds remain untouched for a minimum of five years.
So how do you choose the right saving product? With our savings options, we look at where you are in the Financial Lifecycle, your lifestyle, and your financial goals. Our recommendation is that you have a few different accounts, based on these goals. But what exactly is the Financial Lifecycle?
The Financial Lifecyle
When it comes to finances, we all fall somewhere in what is called the Financial Lifecycle. As we go through life, our wants and our needs change. Your position in the Financial Lifecycle refers to where you are in life and your needs at that time. The stages are Early Childhood, Secondary Education, Tertiary Education, Career Development, Raising a Family, Pre-Retirement, and Retirement.
Understanding where you are in the cycle plays an important role in helping you achieve Financial Well-being, as you will be in a better position to choose the appropriate savings and investment options for your situation.
A key saving goal which we advise everyone to work towards is an emergency fund. We recommend that you save six months to a year of living expenses to pay for unforeseen situations such as medical expenses, repairing or replacing home appliances, major car repairs, and unemployment. Having an Emergency Fund provides you with a financial buffer that can get you through situations such as these without the need to take a loan.
My Relationship with Money
Having a good relationship with money is a key part of your Financial Well-being. This begins with having a positive view of money, as a tool to help you achieve your life goals. Here are a few ways to cultivate a healthy relationship with money.
- Understand basic principles such as budgeting, saving, and investing
- Know your financial position
- Set aside time to review your financial situation, including your budget and goals
- Practise good money habits, like paying yourself first and saving a fixed amount on a consistent basis
- Reward yourself for achieving your financial milestones and goals
- Seek the guidance of a knowledgeable financial partner