Planning ahead to save money
How to separate your savings goals.
Do you want to start saving but not sure what to do first? Start by determining what your saving goals are - common types are emergency savings, emergency income funds, vacation, college or retirement.
Emergency savings should be set aside for unplanned expenses such as an automobile or appliance repair. Try to aim for at least $1,000 in your emergency savings account. Emergency savings helps to ease the stress and burden of unplanned expenses.
Emergency savings is not to be confused with an emergency income savings account. An emergency income savings account is for unexpected job loss or short-term disability. Try to aim for three to six months of your monthly expenses. If your monthly expenses are $1,000, your savings goal would be to have $3,000 - $6,000 in your emergency income savings account.
Goal savings accounts may be for vacations, vehicle, or other big-ticket items. It is important to determine how much the item is, how much you can save toward the goal, and when you want it. You may decide to cut down on dining out or entertainment so that you can put more money toward your goal savings. Goal savings accounts can also be used for holidays. The holidays are always fast approaching, and many people end up in debt because they have not planned ahead for gift-giving. Holiday spending should be planned so that you do not overspend and end up in debt.
Long-term savings may be retirement or your children’s education. These are accounts that you want to earn interest on, compounded over time. The Financial Industry Regulatory Authority (FINRA) explains the various types of education savings accounts available to consumers. A reputable financial advisor may assist in setting up these accounts for you. The National Association of Personal Financial Advisors (NAPFA) has fee-only financial advisors who have committed to upholding a fiduciary standard. Fee-only financial advisors are paid by clients and do not receive any other third-party compensations.
Once you know what your savings goals are, just start saving! One way is to have separate accounts for each savings goal. Several banks and credit unions are now offering sub-saving accounts free of charge. You can have a portion of your income directly deposited automatically from your paycheck into each of your savings accounts so that you are not tempted to spend any money that you should be saving. Set this up with your employer. Be sure to name your accounts so you can quickly and accurately track your savings.
Pick a way or two that work for you, keep it simple and automatic, and make it a habit. Financial security equals financial success. MI Money Health and America Saves have great resources for more ways on how to save money. Also find free webinars on various money management topics on MIMoneyHealth in the Events channel. Happy saving!