5 Safe Practices to Protect Your Savings
In these trying times when the economy is shaky and the threat of the coronavirus pandemic is still around, you’re likely to be keeping a tight grip of your money and just save, save, save. Unfortunately, it’s not that easy to save money, especially when you’re not earning a lot and have plenty of competing priorities to spend money on.
Here’s a guide to help you protect your savings and stay on top of your finances:
1. Stick to your budget
A budget is a financial plan for a defined period that will help you efficiently allocate your money. If you are receiving monthly or fortnightly income from a business endeavour or employment, your budget is typically also set within this same period.
There are a lot of budgeting styles to emulate. The most popular ones include the 50/30/20 Budgeting Rule and the Envelope Method.
- The 50/30/20 Budgeting Rule requires you to allot 50% of your net income to your needs (food, shelter, clothing, transportation, and other necessities that you need to survive), 30% to your wants (entertainment, hobbies, shopping and other lifestyle activities that can improve your quality of life), and 20% to savings and debt repayment.
- The Envelope Method, on the other hand, uses envelopes to help you allocate your money to different expenses and savings. Each envelope is labelled and assigned a budget. Once all the money inside an envelope is spent, you are not allowed to take money from another envelope.
Nowadays, there are also a lot of budgeting apps that you can easily access on your smartphone. Several of these digital tools can be linked to your bank account to help you better track your expenses and cash flow.
Budgeting methods and apps work best if you are bad with budgeting or if you are a serial borrower or a shopaholic who finds it difficult to minimise spending. Aside from having a plan to follow, you can also modify the rules according to your priorities. Regardless of what budgeting method you follow, make sure you don’t end up spending more than saving.
3. Minimise your credit card use
Using a credit card provides you with the convenience of cashless shopping. However, if you’re not careful, it can lead to compulsive spending.
Unlike shopping with cash that makes you aware of how much money is left in your wallet after making a purchase, a credit card allows you to spend more than what you can afford, sometimes without realizing it. This is because even if you have less money in the bank, you can “buy” a lot of things within your credit limit.
Take note, however, that the credit card is just a debt instrument—You are simply borrowing money from your credit card supplier and you would need to repay that with interest. If you need to pay something expensive from a credit card purchase to avoid the interest from accumulating, you could end up touching your savings.
Remember that a credit card is not an evil instrument. It can help build your credit profile and improve your chances of getting approved for a loan in the future, especially if you’re still studying or just starting to work. However, you must use it responsibly to avoid negative records, like unpaid or late payments, that negatively affect your credit score.
The ideal usage for a credit card is 30% of its credit limit.
3. Set up an emergency fund
Emergencies can happen anytime. To avoid dipping into your savings when unexpected expenses have to be made, open an emergency fund account.
While your savings account is intended for major future goals like buying a house or car, your emergency fund is your source of ready cash and a financial safety net for emergency expenses like hospitalization, calamities, and loss of employment or other sources of income.
Financial experts suggest that an emergency fund should have three to six months' worth of expenses in the form of highly liquid assets.
Aside from allocating a portion of your regular income to build your emergency fund, you can also use tax refunds and other windfalls like lottery winnings, birthday money, and employment bonus.
If you’ve used up your emergency fund, replenish with new money over the next few months. This would slow down your savings goals but would ensure that that you won’t be pulling money from it for emergency expenses.
4. Separate your savings and checking accounts
Avoid transferring money from your savings account to your checking account by separating them altogether. Sometimes, even when you have an emergency fund, you can get tempted to transfer money from your savings account to pay for impulse purchases and you are worried about overdrawing your checking account.
The smart way to avoid doing it is moving your savings account to another bank. Although you can still transfer money, it will be less easy for you to do so.
5. Take measures to keep your money safe online
Practising self-discipline, opening an emergency fund, and separating your checking account to avoid touching your savings are all useless if your savings account has been hacked or your credit card has been skimmed.
While it is unavoidable to shop and pay for services online, transfer funds digitally, and monitor your cash flow through an app, you can avoid falling victim to hackers and other digital predators by being vigilant.
Practice these safety precautions all the time:
- Check the security protocols of financial apps first downloading them.
- Avoid visiting suspicious websites, especially for transactions that require personal information.
- Do not click on hyperlinks in emails, especially those that require you to enter personal information, and do not open attachments from unknown senders.
- Do not use public wifi when shopping online, logging into your emails and social media accounts, and doing any transactions that require personal information.
- Keep your tax file number and myGov details private.
- Practice credit card protection at all times: Affix your signature on the card, keep your account number private, use strong passwords for your online account, and avoid storing your credit card number on your browser.
- Use strong passwords for your emails, social media accounts, and various other websites you registered with.
- When online banking, choose an institution that uses industry-standard security, change your password regularly, and register for text alerts.
- Review your bank and credit card statements regularly.
- Report any suspicious activity to the bank immediately.
It takes time to grow your savings and eventually reach your financial goals. Keep your balance continuously growing with each passing day by practicing self-discipline and seeing to it that your bank accounts are safe from hackers and digital predators.