I got my first salaried job after three years of temping and retail, and was very excited to finally bring in enough money to start planning for the future. I didn’t know what that future was going to be — a wedding? a baby? retirement? a crazy round-the-world adventure? — but I knew that I needed to start setting money aside to make it happen.
I earned $42,000 that first year working as an administrative assistant at an insurance company, and by the end of the year had saved $7,000. This is right on target; finance experts recommend that you should save approximately 20% of your after-tax paycheck, and I had saved just a bit over that key percentage. However, $7,000 didn’t seem like all that much. Maybe it was enough for a round-the-world trip, but it certainly wasn’t enough for buying a home, or even buying a new car. And I could forget about retirement; if I only saved $7,000 each year, it would take me four years of working to save for one year’s worth of retirement expenses, not counting inflation.
The math just didn’t make sense. I needed to find a way to save more, and to make my nest egg grow faster.
There are a few tried-and-true ways to increase your savings. One of them, which I immediately took advantage of even though it made my “take-home pay” slightly smaller, was investing in my company’s 401(k) plan and earning the company match. In my case, it meant that if I put in $150 every month, or $1,800/year, my company would match my contribution, giving me another $1,800 that I didn’t have before.
The other fast way to increase your savings is to get a raise or salary increase. You have to remember to put that extra money into savings, of course, and not spend it on a bunch of things you don’t really need. I worked hard, got promoted, and then got a job at a new company. These three moves — along with some salary negotiation skills, which are as important as your resume — boosted my salary to $52,000 within five years, meaning I could bump up my savings percentage as well.
And yet I still wanted to save more. So I started looking at online savings accounts.
We’re probably all familiar with how savings accounts work. Insert money, get interest. Then get compound interest, Ben Franklin’s favorite thing. Of course, many people don’t really think of savings accounts as financial growth tools because the interest rates are just way too small — even with compound interest, for example, you could still end the financial year with only a few dollars added to your savings account.
Online savings accounts, however, tend to offer better interest than brick-and-mortar banks. Since I was happy with my current bank, I had no incentive to look for a new savings account, until a colleague mentioned the rates he was getting with his online account. I immediately started doing my research; online savings rates by Discover Bank, for example, are designed to be high-yield savings accounts to help people save for unexpected expenses.
Other online savings accounts offered similar benefits. I’m not going to promote any one service over another; you should take the time to find the online savings account that is right for you.
With an online savings account, I was able to grow my savings even faster. Keep in mind that once you start playing the “which online savings account has the highest rate” game, you’re thinking in terms of every dollar counts; you aren’t going to get rich from an online savings account, but if you save enough, you’re likely to end the year with a hundred dollars or so of “free money.” You’re also probably going to build a CD ladder to get another extra $200 or so, and you’re going to be the kind of person who knows exactly how to rebalance your 401(k) every year.
In short: you’re going to start thinking of your finances not as a “get rich quickly” plan, but as a long-term strategy involving multiple types of growth instruments, from stocks to savings accounts to company matches to negotiating an annual raise.
And that’s what I learned, when I opened my first online savings account. I learned that finance wasn’t about a single-shot solution; it required patience, strategy, and many different small areas of growth.
Now, I save more than $15,000 every year, with a good third of it coming from interest, matches, and returns. I paid for my wedding in cash, and we took that round-the-world trip together. And, when retirement comes, I think I’m going to be ready.