Simple Savings Suggestions for the Beginning Investor

The very first thing that you must do is to create a budget.  Itemize how much income you have coming in and going out each month.  Determine what the necessities are and trim the fat off of the expenses you don't really need.  Allocate a portion of your income for emergencies and entertainment.  This is an absolute must. You want to be able to confidently save for the future without worrying about the threat of the unexpected.  It is also equally important to allow yourself some money for rest, relaxation and fun.  Keep the funds required to meet these expenses in your checking account.

After you have determined what dollar amount you can comfortably save each month, split that amount in half.  Place the first half into a savings account or preferably a money market account.  Check with your financial institution to determine what is available and the annual percentage yield for each.  These types of accounts can have withdrawal limitations and/or penalties for early withdrawal but traditionally draw a higher rate of return than your checking account.

Place the other half of the money you intend to save into a timed certificate of deposit (CD) or some type of a mutual fund.  CD's can be opened at your local bank.  These are special accounts that allow you to lend your savings to the bank for a set amount of time (i.e. 6 months, 12 months, 5 years, etc.) and in return the bank pays you interest on the amount being held. If you decide to withdraw your funds prior to the CD's maturity date, you will pay a penalty.  Once the CD has matured, you can choose to either withdraw your savings or renew the CD with your funds plus the compounded interest.  Unless you specify otherwise, most banks will automatically renew the CD at its maturity and give you a grace period (usually 3 months) to decide to withdraw.

Mutual funds should be purchased from mutual fund companies and not your local bank or financial institution.  The fund pools together the investments of many different shareholders and then uses the strength of the collective monies to purchase large amounts of several different stocks.  By diversifying the stock purchase in this manner, you can ensure a higher average rate of return while assuming less risk than standard stock options.

There are many more options available to begin your investment journey.  Some of these include stocks, savings bonds and individual retirement accounts.  You should shop around to determine what works best for you.  Many banks offer free financial planning classes that will help you to compare what is available.  It doesn’t really matter which of these you decide to choose to start with but it is simply imperative that you choose to start.