Personal Finance - Saving 3.3

What does it mean to set up an "automatic deposit" and why is this a good savings strategy?

An automatic deposit means that you set a portion of your paycheck to be deposited into an account automatically.

What is the benefit of automating your savings account contributions?

Your money will be transferred automatically and guarantees you will be contributing to your savings.

Which strategy will help you save the most money?

As soon as you receive your paycheck, put a fixed amount or percentage of your money directly into your savings.

Why is the 50-20-30 rule easy for people to follow, especially those who are new to budgeting and saving?

Because 50% of monthly after-tax income should be used for housing, fixed, essential, needs expenses. 20% of monthly after-tax income should be used for savings. 30% of monthly after-tax income should be used for flexible/non-essential/wants expenses.

What does it mean to "pay yourself first"?

Deposit money into your savings account before spending on anything else.

This article recommends that 20% of your income is meant for your savings, investments, and payments to reduce debt. What are the potential risks of having all three of these buckets belong in the same category?

By lumping all of the three types of savings in one category, an individual risks under-allocating for any one of the three categories.

Explain how compound interest is different from simple interest.

Compound interest means interest is paid not only on the principal or money initially saved (as is the case with simple interest), but is also paid on interest already earned.

Summarize how compound interest helps you to accumulate savings even faster.

Interest earns interest. Because the interest you earn is also growing in addition to the original amount you invested. The more frequent interest compounds, the higher the annual effective rate of interest will be.

Why might some people still prefer manually saving their money?

Manually saving might be a good option for people who like more control and like to know where their money is going each month.