Saving money builds a foundation for establishing future wealth while helping you enjoy shorter term lifestyle goals. Life is about experiences. By saving money, you’ll be able to partake in more of what you like to do now, and invest in those things you dream of having.
Setting goals makes the choice to save—rather than spend—much easier. Get the entire family involved and try saving money according to what you want to do with it. Divide and allocate your savings into three specific categories: emergency fund, short-term and long- term savings.
Emergency Fund. Your emergency fund is your first priority. Emergency funds should equal at least six months of your living expenses. So if your bills are $2,000 per month, you should have $12,000 saved for emergency purposes. For those of you that are in an industry that is downsizing or have a job that is highly competitive – you should set aside more money in your emergency fund in case of longer-term unemployment. Also be prepared for another major market collapse – see how your industry performed during the great recession that started in 2008 and be prepared for a similar employment situation. Unexpected problems arise in life, and your emergency savings helps reduce your worry. For example, say your car breaks down and needs expensive repairs. If you have no money saved, how will you get
to work? Take the bus? Walk? Get rides from friends? If you have an emergency savings, you’ll get back in the driver’s seat with little or no stress or panic.
Short-term Savings. Your short-term savings is important because it gets you in the habit of saving for financial goals that you will be able to enjoy in the near future. Short-term savings hold the money you set aside for those fun things you enjoy doing. Plan ahead and determine how much you must save each month to pay for the things you love to do. For instance, maybe you want to go to get good seats at a concert that are going on sale in 6 months but tickets are $600. You could start saving an extra $100 a month and have the money available for you to buy the tickets.
Long-term Savings. The long-term savings account is where you hold the money for future investments. This account is the backbone of your financial future. Get in the habit of paying yourself first and deposit money into this account every month. In other words, before buying new shoes, taking a trip, or go out for a nicer dinner, first make sure to set aside money in long-term savings. Set a goal to save at least 10 percent of your income for long-term savings. This goal may sound challenging, but it becomes easier over time. The more you can put into this fund the sooner you could reach financial independence.
Debt Payoff. For those of you that are in debt, compare the interest rates on your debt to your savings interest rate or investment rate of return. If you are paying more interest in debt, first work toward paying down your debt prior to your short-term and long-term savings. For instance, if you have a credit card at 24% interest but your savings account is only earning 2%, it would be better to pay off your credit card first. Before paying down your debt, make sure you have some emergency money set aside.
Saving is the key to calling your own shots in life. By setting up and following your budget, you’ll see your savings grow over time. This will help you attain financial security and reach your personal lifestyle goals.
Jennifer F. Lee is a writer for the National Financial Educators Council. The NFEC provides financial education solutions to families and organizations globally. Their mission is to create a world where people are informed to make qualified financial decisions that improve their lives and the lives of their loved ones. Learn more at www.FinancialEducatorsCouncil.org
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