Become a Savvy Saver: A Guide for Beginners

Saving money sounds simple but figuring out where to start can feel overwhelming. Should you open a savings account, explore investments like stocks, or think long-term with retirement planning? And what if you don’t have much to save right now? No worries - we’re here to guide you!

We’ll help you understand the basics of saving, from building a strong foundation with credit union accounts to exploring opportunities beyond - like investing in the stock market or preparing for retirement. No matter where you’re starting, you’ll discover tools and tips to make saving simple, approachable, and something you can feel good about. It’s time to become a savvy saver! 

The Key to Saving: Building the Habit

When saving or investing money, most people start by searching for unique account features or the highest returns. But the key to saving isn’t about what you get - it’s about what habits you form. The act of saving is more valuable than any interest rate. It’s a skill you’ll use throughout your entire life.

Start small. Whether it’s skipping a coffee run or setting aside part of your paycheck, every little bit adds up. Over time, those small actions turn into a habit, and that habit builds a financial cushion that gives you freedom and peace of mind. The key is to start and stick with it.

Step #1: Savings Accounts

The first stop on your journey to becoming a savvy saver is savings accounts. These accounts are the most basic savings vehicle the credit union and other financial institutions offer and are an excellent starting point. 

Use your savings account to become accustomed to setting aside money and separating it from your everyday funds. Whether saving for a goal or future bills, savings accounts make organizing your money a breeze.

Advantages:

• Easy access to funds as needed.

• Low or no minimum balance requirements.

• Organize savings for goals or other expenses.

• Federally Insured by NCUA (National Credit Union Administration).

Drawbacks:

• Lower earning potential versus other account options.

Step #2: Money Market Accounts

The next stop is money market accounts. Think of money markets like a high-yield savings account – you earn higher returns but still have quick access to your money if needed. Their higher earning potential and easy accessibility make them one of the best options to house your emergency fund.

A unique feature of money market accounts is that the dividend or interest rates are usually tiered - meaning, the higher your balance, the more you earn. 

Advantages:

• Easy access to funds as needed.

• Tiered rates equal higher earning potential.

• Ideal account to house your emergency funds.

• Federally Insured by NCUA (National Credit Union Administration).

Drawbacks:

• Withdrawals are typically limited to 6 per month.

• Lower earning potential versus some investment opportunities.

• Often have a minimum balance requirement 

Step #3: Certificate Accounts

Once you build up considerable savings with your traditional savings account and money market and feel confident that you have enough money to cover emergencies, your next stop should be to open a certificate account. Certificates provide even higher returns in exchange for locking your funds into a fixed term.

Locking your money up may seem like a downside, but it’s truly a positive – it forces you to save and helps you earn more on your investment. These accounts are a great test to see if you can leave your money untouched for an extended period, allowing the compound interest to work in your favor and lead to higher savings. 

Advantages:

• Highest earning potential among savings accounts.

• Set terms for you to save and let compound interest work in your favor.

• You can pick the term that matches your budget and goals.

• Federally Insured by NCUA (National Credit Union Administration).

Drawbacks:

• You’re unable to withdraw funds early without a penalty.

• You cannot take advantage of new, higher yields until your certificate matures.

• Often have a minimum balance requirement 

Step #4: IRA or 401(k) Accounts

As you progress along your savings journey and your balances grow, your next step is to start saving for retirement. IRAs (Individual Retirement Accounts) and 401(k)s are tax-advantaged accounts designed to help you save for your golden years. 

Typically, 401(k)s are offered through your employer, while IRAs can be opened by anyone – even if you already have a 401(k) account. Both provide unique tax advantages and come in two forms: Traditional and Roth. Traditional 401(k) and IRAs offer tax benefits now, while Roth accounts provide benefits once you retire. 

Many employers offer 401(k) matching programs that will match your retirement contributions up to a certain amount or percentage, essentially giving you free money. Make sure to take advantage of this feature if it’s offered at your workplace.

Advantages:

• Earn higher yields than many traditional savings accounts.

• Provide tax advantages to benefit your golden years.

• Options to invest in higher-yielding avenues, such as the stock market.

• IRAs offered by the credit union are federally insured by NCUA (National Credit Union Administration).

Drawbacks:

• Funds are not typically NCUA insured unless through an IRA held by the credit union.

• Cannot access funds without incurring a penalty.

• Possible tax penalties for early withdrawals.

• Higher risk if funds are invested in market-based instruments, such as stocks.

Step #5: Market-Based Investments

Once you have a solid savings and retirement plan, begin looking at other investment opportunities. These might include stocks, bonds, precious metals, or other avenues. While these options are higher risk, they also have the potential for high rewards. 

It’s important to remember that market-based investments are not federally insured by the NCUA or FDIC, so you may lose value on your investments. Additionally, these options are subject to market volatility, meaning you might be unable to access these funds in a down market without taking a loss. 

Savvy savers shouldn’t go down this route too early until they have an established emergency fund and money stowed away for retirement. That way, if you incur more risk than reward, it’s not at the expense of your savings or future. 

Advantages:

• Highest earning potential.

• More opportunities for financial growth.

• Potential protection against inflation.

Drawbacks:

• Funds are not federally insured by NCUA or FDIC.

• Higher risk associated with investments.

• Investments may lose value over time.

• Subject to market volatility with delayed withdrawals in a down market.

• You must pay capital gains tax on earnings.

When you’re new to the investing world, knowing how to get started and making the right decisions for your circumstances can seem intimidating. But thankfully, you don’t have to navigate your investing journey alone! You can meet with a financial advisor to help you develop a personalized investment strategy that aligns with your goals and risk level. 

Tips for Getting Started 

When you’re ready to start your savings journey, here are some tips to help you ensure a smooth road ahead: 

Start Small: Remember, even if you don’t have much to save at first, the goal is to develop the habit. As your balance and confidence grow, you’ll become more comfortable with your saving abilities.

Mix It Up: Use a mix of account types to take advantage of the different benefits each one offers. For example, you can set aside money for upcoming bills in your savings account while your money market account houses your emergency fund.

Save Extra Funds: Put a portion of any extra money (tax refunds, work bonuses, birthday or holiday cash, etc.) into your savings to boost your balances and maximize your earnings.  

Automate It: Put your savings on autopilot with Automatic Transfers or Payroll Deductions. Set it, forget it, and let your balance grow! 

We’re Here to Help!

As you embark on your journey toward becoming a savvy saver, remember that every step forward counts. The key is to start where you are, choose the savings options that align with your goals, and remain consistent in your efforts. Every cent you save now builds a stronger foundation for your financial future. You’ll be a savvy saver before you know it! 

If you’d like to learn more about the savings options we offer, including Savings, Money Market, Certificate Accounts, or IRAs, we’re ready to help. Please stop by any of our convenient branch locations or give us a call at 248-322-9800 extension 5 to speak with a team member today.

 

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