How to Save Smarter - Build Your Financial Safety Net
- liveyourmoneystyle
- May 26
- 4 min read
Updated: May 27
Welcome to the third episode in our 5-part podcast series on the 5 Essential Pillars of Personal Finance. At Your Money Style, we believe personal finance doesn’t have to be complicated—and that continues with building and understanding your Savings.
Grow your savings through the power of compound interest and start to set up your savings goals.
In this episode we dive into why having savings is important for everyone, no matter their financial status! We cover the definition of compound interest and how to use it to your advantage, when to save vs invest, how to set savings goals and where you should be saving your money.
Why Savings Matters + Compound Interest
When you earn interest from a bank, it means that the bank is paying YOU to borrow your money. They will pay you interest on a monthly basis and automatically deposit it into your bank account. The amount of interest you earn depends on the interest rate the bank is willing to pay and how much money you have in your bank account.
This interest is the good kind of interest you are earning not paying to banks when you can’t pay your credit card bills in full or are borrowing money from a bank. We will get to the bad side of interest when we discuss the Debt pillar in a couple of weeks.
You probably have heard the term compound interest, but do you understand what it means? It's earning interest on the interest you already earned. For example, if you earned $100 in interest in one year, then the following year you will also earn interest on that $100 of interest you earned in the previous year. So, you are not only earning interest on the money you deposited into the bank account but also the money you have earned from the bank for keeping your money deposited.
The longer you keep your money in a bank account earning interest, then the more it will grow.
One other quick back of the envelope calculation you can use is the rule of 72. The formula we will share will help you know how long it will take your investment to double. You take 72 divided by the interest rate which will result in the number of years it will take for your investment to double. As an example, if you have an interest rate of 4% in your high yield savings account then you take 72 divided by 4 which equals 18 years. You can also use this same math when we talk about investing where you may earn a higher rate of return. More on that in the next episode on Investing.
We have linked a useful calculator so you can see the impact of saving your money over time. You can have fun seeing how much your money will grow over time!
When to Save vs Invest
To determine whether you should Save vs Invest you should categorize your goals into the following:
Short-term: 1-3 years
Mid-term: 4-7 years
Long-term: 7+ years
Understanding when you will need the money available as well as your risk tolerance
Investing yields higher rates of returns over longer periods of time but does involve risk. Investing should be used for goals that are long-term
Saving is a low risk option but comes with lower rates of returns. This is good for money need for short and mid term goals
How to Set Savings Goals
You want to make sure as a part of your overall financial planning you have set yourself up for success by having savings goals.
You should list out all of your savings goals, of which one of those savings goals should be your emergency fund. Other goals could be saving for a house, car, vacation, or something else.
Your savings goals are personal to you. You don’t need to worry about what other people are saving for. You just want to make sure they are realistic for you so you don’t become discouraged with saving up for something.
If you achieve a goal, then you can redirect the money that you were saving towards another saving goal, investing for your future or treating yourself to something special before deciding what to do with the money on an ongoing basis!
Another term you might hear related to saving is “sinking fund”. Essentially this term is used when you are saving for a very specific goal for when you will need the money. You could set up a “sinking fund” throughout the year to save up for holiday purchases in December.
We created a Savings Goal template to help you with planning out your goals. It will help you determine how much you need to save on a monthly basis for your goal(s) based on the time frame you put in. You will then be able to see if it’s realistic or you need to change something. You can find the template in the links below.
Where You Should Save Your Money?
There are a lot of banks offering high yield savings accounts these days so there is not really an excuse to not have your money in one at this point.
Always make sure you check that the bank is FDIC insured. This means that your money is backed by the U.S. government. It’s backed up to $250,000. Bank failures don’t happen often, but they do happen so make sure you verify.
You also might want to check on the interest rate you are receiving from your bank on an annual basis as they do fluctuate.
Episode Resources For Saving:
Explore the 5 Pillars on our website
Have questions or want to share your story? Email us: hello@liveyourmoneystyle.com
