Savings

There are different reasons to save, and different approaches depending on what you are trying to achieve. One overall savings goal is to put money away for a rainy day; anything from health related problems, for repairs to a house or car, or an interruption to employment. Most experts say to put three months salary away to cushion life's little emergencies.

Another common saving strategy is to target a specific purchase or expense, like a new sofa, or a vacation, and plan your savings around that specific amount. In this case, either put away a set amount every month, or even create a second bank account and divert the savings into that account so it can't be touched, and once you reach the amount, you make the purchase with a clear conscience.

The important longer term strategy is more about saving for the future. Numerous books like the wealthy barber that were written about the huge long term savings benefits by making small changes in how and what you save. One of the easiest ways to approach this kind of savings is with small but regular saving program An often used example is that if two brothers both start saving money, with one starting at twenty and one starting at thirty five, the brother that started saving earlier would have ten times as much. The reason why savings can be so dramatic is that the money that you save increases not only as you save, but is accelerated by the compound interest that continues to grow over time.

The easiest way to put long term savings away is to set up an automatic withdrawal of funds. You may feel the difference in not having that extra money initially, but before long, you will adjust and will get used to it. Your budget will make sure that if it's not there you don't miss it. In fact, many companies allow flexible ways of having savings deducted directly from an employee's pay, making it easier to keep sticking to the plan.

Borrowing Money

The best tip about borrowing money is simple: don't. If you think of it this way, credit cards can add up to 20% interest to all of you normal expenses, so if you avoided paying all that money to interest, it would be like getting an extra 20% raise. There are benefits from credit cards, like extended warrantees, dividend programs, air miles, purchase protection, and establishing a strong credit rating, but the best approach is to make sure you pay your balance in full every month. This can be a benefit in purchasing in cash by giving you small benefits plus allowing you a few extra days to pay your balance in full. Having said that, there are some purchases or situations where you will need to borrow money, and there are always better approaches in how to borrow.

One major tip is to shop around on interest rates. Banks are often very competitive on rates to get customers, so you may be able to drop an interest rate by a percent or more with the cost of spending a few extra minutes or hours talking with a few more banks. Remember - they do want your business and at the end of the end of the day, you are the customer with control over who you do business with. Many banks rely on the consumer feeling intimidated and ‘at the mercy' of the big banks and the dictated terms and rates.

There are also different ways of approaching loans that may help not only from a financial point of view, but also by streamlining your finances. For example, if you have a number of loans and credit cards with balances, it may be convenient to arrange for a consolidation loan with the bank. This will does extend the term of the loan past what some of the smaller debts may have had, but it simplifies the payments and you can often end up with an overall reduction in interest payments, thus saving you money in the long run.

If you're looking at large purchase or expenses, such as home renovations, another common borrowing approach is to tap into the equity in your home, commonly referred to as a home equity loan or a second mortgage. This allows you to leverage the money you've already paid against your mortgage and uses the value of your home as collateral against the larger loans, which traditionally require some form of security to ensure the loans are repaid.

Lines of credit are also often used for these larger expenses, and are different from standard loans in that they have more flexibility. You can draw on them as if they are a bank account, and only pay interest on the outstanding balance. These can be helpful to set up in an emergency as they cost nothing, and can help fund additional purchases when needed. To get an even better interest rate, you can get a secured line of credit using your home or other assets as collateral - they will help fund larger lines of credit for the bigger renovations or other larger expenses.