Importance of Savings As a Secondary Income

A lot of money management lessons and experts acknowledge that savings are an important starting point towards having a secondary income. Savings in this regard point towards the money that is saved every time an individual gets any form of cash be it salary, gifts or tax refunds. The savings you create over a long period of time or even a shorter one could prove to be as important as having another stream of income. These savings always help you especially in meeting unexpected expenses and realizing future goals.

Affording Large Purchases

One of the greatest advantages of having personal savings is that they enable you make some large purchases like houses, cars, meeting college fees etc. saving gradually greatly builds your savings value and this enables you to inch closer to affording that great dream that you have. In this scenario your savings act as an extra source of income as you can take them plus the cash at hand you have and fully pay for that big goal you have been working towards achieving.

Savings enable you to make these huge purchases without the option of taking a loan or debt to finance the purchase. In a normal case, if one does not have enough money to buy something they have the option of taking out a loan in order to get enough resources to pay for the purchases. If you have savings in your bank account or in any financial institution, you could use them instead of taking a loan which will plunge you into more debts.

Earning Interest

If you were to put your savings in an interest earning account, you will have created another source of secondary income for you and the family. However, in order to earn a substantial interest from your savings, there are some factors that you ought to consider. The interest rate is one of the most important factors to consider first if you want to earn more. It is important to remember that the higher the interest rate will be then the higher your money will grow. The other factor to consider is the time that you will keep your savings deposited in your account. The longer the money will stay in the savings account, the more the interest you will earn making your income to be higher as time goes by.

The third factor to consider is the way the bank you use pays its interest. Compounding interest is the way most banks pay their interest meaning that you will be earning an interest not only on the initial amount you have saved but also on the interest you earn per year. This is a sure way of earning some extra income from your savings adding more advantages of having savings in the first place. When looking for a bank to place your savings in, ensure that the bank has a higher Annual Percentage Yield (APY) as it will mean that your savings will earn you more returns per year.

Putting Your Savings in an Investment

When a person decides to have some savings on the side, they are not only said to be saving but also investing in real sense. It is possible to put your savings in a form of investment that you will not touch for a long period of time like maybe 10 years. It is not a must that you put such savings in a bank account rather you can invest them in a more benefit-earning investment option. It is possible to risk these savings on the stock market or pensions which are better performing and guaranteed to give you more returns in the end. They can also be invested for the long term that is you can opt to keep the savings there until when you retire. When you liquidate your savings you will make a good sum of money in returns as the savings will have grown by leaps and bounds.

Breaking Bad Habits and Making Savings Habits!

Breaking bad habits and making savings habits!

I’ll never forget that look my father gave me. His lips pursed in frustration, eyes aflame, brow creased like a rusted piece of corrugated iron in ridges of displeasure. And that finger, shaking with rage, levelled at me. “No son of mine is going to be a dancer!” My mother, passive but shrewd in her neutrality, new full well that I wouldn’t make it (there is a genetically-proven lack of rhythm in our family) and just smiled quietly. I was saving to pursue my dream career in dance, and saving (no matter what for) was the best habit to get into in her eyes. The argument escalated (in retrospect performing the arabesque to demonstrate my dancing prowess only seemed to aggravate him further), his mouth began foaming like an over-exerted llama as his words transformed into incoherent shrieks…

Needless to say my dancing dream was never realised. Nor was my training as a Steeplejack ever completed or my attempt to make the GB Dressage team in time for the Beijing Olympics. All these setbacks haven’t affected me; indeed they have steeled my character to the next challenge. In the meantime though my savings have grown into a sizeable nest egg, so much so that the last time I acquainted her with the balance it brought a tear to my dear mother’s eye.

You see, saving is a really good habit to get in to. So much these days is made of bad habits, that positive habits quite often go unnoticed or unremarked upon. I am not a good authority on modern dance, but I can give you tips on how to get into that most wonderful of habits: the saving habit.

Before you look to start saving, put your finances under the spotlight. Total up your monthly bills. Do you have an overdraft or credit card? If you do, make paying these off your priority (unless you have a rate of 0% and are disciplined enough to repay before the rate goes up). When you have been through your finances, work out how much you can save. Be realistic about this and only cut your leisure budget or make sacrifices if you think you can honestly stick to it.

Once you know how much you can afford to save, the next thing to think about is the reason you want to save. Usually this will be for:

An emergency fund. This is the first thing you should try to have saved. It can provide a safety net if you are made redundant or another unexpected event puts pressure on your finances. Typically you would aim to save the equivalent of a few months’ salary but this will vary dependent on your circumstances. Take time to think about how much you would ideally like set aside and then aim to save towards that goal.
A big purchase, such as a car, holiday, deposit on a house or private dance tuition with Darcey Bussell. This kind of saving is generally over a shorter term and therefore is easier to motivate yourself for as there is the tangible reward at the end. Here’s an idea: a lot of shops will do “buy now, pay later” offers on big ticket goods such as televisions or sofas. If you have the money saved, keep it saved and use the buy now, pay later. You then pay for the goods at the end of the period, but keep earning the interest on your savings in the meantime!
A future time when you won’t be as prosperous as you are now. This could be to subsidise your income in retirement or to fund your fledgling modern dance career. This type of saving is no less important but can be more difficult to motivate for as the goal might seem less exciting and will take longer to achieve.