How to effectively manage your savings account

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Building savings is a crucial goal for every consumer, according to www.credit.org.

Don’t go overboard: Putting too much into savings can set you up for failure just as surely as saving too little. If you leave your account short of what you need to pay all of your bills, you will have to dig into your savings, defeating the purpose of your savings account.

Start modestly, and only increase the amount you put into savings if you are able to afford to live without the money. After a few months of getting used to a new budget, you will hopefully find that you can increase the amount your save. Ultimately, your goal will be to save 20 per cent of your earnings, but that full amount probably won’t be obtainable until you have paid down your debts.

Separate your savings: Most people have a current and savings accounts with the same financial institution. It is very easy to transfer funds back and forth between the two accounts; many banks let you use a website to transfer funds immediately. This is convenient when moving money into savings, but usually it is too convenient when it comes to pulling money out of what should be a long-term savings account.

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Work toward savings goals: Your first savings goal is to set aside 90 days’ income in an emergency savings fund. Once that goal is achieved, then you can start to save for other goals, like vacations, a new car, a down payment on a home, etc. Keep these funds separate by starting a new account for your goals. Or consider transferring your emergency savings fund into a higher interest-bearing money market or other savings vehicle (be sure not to put your emergency fund into a risky investment).

Direct deposit: Talk to your employer about direct deposit of your paycheque. If it is available, take advantage of it, and try to have a portion directly deposited into your savings account. Remember to only set aside as much as you can afford at first, increasing the amount as you pay down your debts.

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