cash in the bank

Posted : April 10, 2018
Last Updated : September 19, 2019

cash in the bank

Saving and investing are wealth-building basics. Learn how saving money improves your financial well-being, how to identify three basic reasons for saving money, and how to compare simple interest and compound interest.

Super Saving

Saving money is important, and it is one of the basic steps to building wealth. Saving gives you options when you’re ready to buy things, and it gives you peace of mind. When you are young and only have access to small amounts of money, it may seem impossible to set some of it aside for saving. However, if you establish this habit early in life, it will become easier for you. Saving money will also prevent you from going into debt when unexpected wants or needs arise! Whenever you receive money as a gift or for work, take a certain percentage and put it away for savings.

Three Reasons to Save

The three basic reasons to save money include: emergency fund, purchases, and wealth building.

Emergency Fund
This is extra cash to use when things come up that you weren’t expecting. Money emergencies will happen. Many people end up going into debt to cover those expenses. But with an emergency fund, you have the cash to cover them.

This money is saved to purchase things you want like a shirt, a concert ticket, or even a car. It’s important to save up and pay cash for these things instead of buying them on credit and going into debt.

Wealth Building
Did you know that your money can earn you more money? That’s really exciting! The common term for this is investments. This includes any money that you put in the bank that earns interest. When you invest money, you earn interest rather than pay it, and that’s always a good thing.

Simple Interest Versus Compound Interest

Money that’s invested can earn simple or compound interest – basically the math that makes your money grow. Simple interest is just added to your initial investment, also called the principal. Compound interest is a mathematical explosion that helps you build wealth! Compound interest is added to your principal and to the previous interest you earned. And it just keeps growing!

Source: Ramsey Solutions

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