When most people think about saving money, they think about their individual savings account or individual financial products. However, what about if you want to save money with friends, family members, hobby group members, or anyone else? While note everyone has a group saving plan, there are benefits to planning your savings with a group of people. Let’s look at how groups can save money effectively.
Why save money as a group?
There are various reasons why people choose to link their savings with other people.
Saving your own small amounts may not give much interest and it may grow slowly, but saving with other people can help bolster this. It also helps to keep all your payments together when a group of people is all saving for the same thing, whether that is an event or special occasion, investment opportunities, or anything else.
Let’s look at some of the most common group saving options:
Friends or family savings
Lots of people want to pool savings with family members or friends. Friends and families often save for holidays, health care or other emergency funds, home improvements, important birthday parties, or other large events.
Generally, this can be quite an informal savings arrangement, with each member either making payments on a regular basis or adding their contributions when they can. Within friend groups and families there is often an informal agreement that members with more resources will put forward more money than those who have lower incomes, though sometimes people face peer pressure to contribute the same as others. It is important, even in small groups, everyone knows what is expected of them and what the savings goals are.
Hobby groups
Any hobby group or interest group should have can benefit from having a savings account tied to the group.
Typically, hobbist groups will have savings accounts that can be accessed by the treasurer or the chair of the group, with funding coming from people paying membership fees or voluntary payments. This usually means the members of the group meet to discuss the financial contribution from members, investments, and what the funds are going to be used for. When saving as a group like this, it is important that every member can have their opinions expressed about financial matters to help the group decide how to use their funds.
It can be hard to set this up if you are in charge of a new group. It may be worth contacting a financial advisor to help you find out what kind of bank account or savings account is right for your hobby group or organization. If you are planning big events for a group, you may also want to have a separate savings account or savings pot for that.
Investment groups
Some investment opportunities are only available to people with enough of capital. This means that a savings group can help people pool their money together to access savings and investment options from a range of companies that may not be available to them alone.
It is highly recommended to hire a financial advisor when looking at making investments with other people. Money can be a sensitive topic, so it is best to have a professional who can help. Everyone should be aware of the risks and possibilities of having their savings pooled with the savings of other group members.
Tandas and ROSCAs
Tandas and ROSCAs are a type of group saving that has a long history, but not many people know about them. ROSCA stands for Rotating Savings and Credit Association.
A ROSCA is generally something used by small groups of people who know each other well. Another term for this is a Tanda, which is generally a term used in South America.
A ROSCA works almost like a no-interest loan or a savings account for the members. Each person who chooses to participate in the group contributes a set amount every month. Then, each month one member of the group takes the pot of money. For example, if three people – Mark, Laura, and Alex – start a ROSCA, they all contribute the monthly amount, and at the first meeting, Mark takes that amount for whatever purpose he wants. At the next meeting, Laura takes the money that the three of them contributed in their monthly payments.
ROSCAs can be useful, but if there are many members it can be a while until you get your chance to take the money, and there need to be agreements in place to make sure every member pays, even after they have taken the money on their month.
Saving with strangers
While these are less common, there are also times when you can choose to save with a group of strangers through a hedge fund or similar. This means you do not have to know the people who are also involved. Some people may consider this to be too risky, or may want to have more control over their savings. If you are saving with something like this, it is often smart to get professional advice.
Some people set up ROSCAs or Tandas with people such as neighbors – people who they may not know personally – but this again can have risks, if you cannot ensure that everyone will pay promptly.
Can you get a group bank account?
If you want to save for a specific event or for a group, you may want to look into what kind of bank account you can get to handle the finances.
Some banks may offer Investment Club bank accounts that give you options to invest money from a group.
Other bank accounts can be designed for storing money for a hobby group or organization. These accounts typically are only accessible by the treasurer or chair of the group, and you will need to change who has access to the account when these positions change hands.
Having a bank account for your group saving can be useful as it means that the members of your group can give you cash. Depositing cash into an online-only account or app can involve extra steps and means that the cash has to pass through the bank account of one of the members of the group, which can lead to concerns over the security of the cash, as well as having potential tax implications. If you are likely to take some of your savings money in cash, it is worth getting a bank account that allows this.
What are the risks of a group savings account?
Generally, group accounts have only a certain number of people who are able to access the money or change the services you receive from the bank. While any decisions over savings services are something the group can decide during a regular meeting, you may find that some snap decisions have to be made by the people who hold the account. You need to fully trust whoever has access to the group finances.
This risk can be larger if you have a savings account where you are saving with friends or familiar. If you have no formal procedures in place, you could find that friends or family may take advantage of the money in the account, which should be avoided. The money you save together should only use used for the agreed-upon use. One of the largest problems when saving money with friends or family is that someone may take the money for an urgent need while promising to pay it back in the future – inevitably, a lot of people do not pay back the money when they take it from a group, or at the very least they use it as a no-interest loan and lose any interest that the group could have earned.
Finding the right account
Getting the right account is important. You need to find an account that all the members of your organization agree with. You need to consider what fees the accounts have, as well as what interest or benefit they can offer. Some investments have hidden costs, so it is good to get a clear idea of the account before you open it.
Group savings apps
With the rise of technology, there are of course group saving apps that can help. Whether you want to set up a ROSCA or other rotating savings and credit association agreement, or pool money for a one-off event, there are options, and new app types for finance are being released all the time. These app services can help people manage and decide how to deal with group finances.
It is always important to make sure that you get advice from a financial expert when considering your financial future, especially when considering what financial services to use, or when looking at tying your finances with other members of a group. You need to make sure that any companies you use apps or services from are right for you.
PayPal
One of the most common ways for people to save with friends or a family member is PayPal.
For businesses, including small or independent businesses, there is a PayPal business account that can help people keep track of their finances. However, the more common use is to pool money or hold money for a group.
The PayPal app makes it simple for groups to send money into one PayPal account, where it can be easily tracked. While PayPal Pools are no longer active, it is still possible to do this manually. This can be very helpful when saving for large events, or for small hobby groups, as multiple people can have the login details to access the money.
Collection Pot
Another alternative for gathering a pot or pool of money for a future event, a birthday present, or similar is Collection Pot. In this kind of app, one person has control over the money, which can be given by multiple people. This app tracks who has given what, meaning you can be sure that everyone remembers to contribute what they agreed to. Alternatively, you can put an open call for donations from friends or a family member for whatever you are jointly saving for.
Chip
Chip is an app that helps monitor bank accounts and works out how much you can afford to save. This can help members of a saving group, whether that is friends or family, figure out what they can collectively save. Apps like Chip help you to start small and pay what you can easily afford without risking damaging your credit rating or expenses.
Chip also helps you with saving money automatically, which means that you can guarantee that you and everyone in your group savings plan are all going to pay the required amount.
Plum basic
Plum basic offers similar options to Chip, though there is also a version of the app that offers more options for a fee. The exact features of Plum depend on which version you pay for – and you need to add this cost in when considering your savings, as the cost can affect how much each member can save. The free basic version of Plum offers information and advice on how much you can save though, which is the most useful tool they offer for considering group savings.
How much can I save with a group?
It is vital to make sure that your contribution to saving with others does not put you into financial difficulties. Only ever contribute money that you do not need for bills or other regular costs. You should make sure you look at budgeting advice before trying to save money with others.
Beyond this, you should consider how much money you all need to save, as well as your timeframe. This will help you come up with appropriate monthly payments to help make sure you all raise the money you need.
Conclusion
Saving with others can be a great way to raise money for exciting events, extravagant gifts, homeownership, or anything else. However, you need to make sure that you carefully consider all the risks and find the right kind of financial arrangement for your needs, as well as the needs of the group as a whole.
Finances are one of the most controversial topics between even the closest of friends, so you need to be careful. If you do not do enough preparation and research, you could find rifts forming, or you could find that your first hobby organization meeting is also the last meeting.
Hidden fees or an unexpected account cost can make this more difficult. You should always keep track of the money you have saved with others.
