No matter what your age or stage in life, it is never too late to start planning, preparing and executing a savings plan. Based on one of the wealth industries top professionals, here are some key points to a healthy savings strategy.
How Much Should I Save?
This is a complicated question as your savings should not just one big lump sum. Savings are best broken down into different categories and goals, and are included in these 7 savings steps. Step 1: Save $1,000 for a starter emergency fund
Step 2: Pay off all debt (except house and cars)
Step 3: Save 3-6 months of expenses in an emergency fund
Step 4: Invest 15% of your household income in retirement
Step 5: Save for your children's college fund
Step 6: Pay off your home early
Step 7: Build wealth and give back
Let's take a closer look at step 3, since it is one of the most significant savings. There is no set amount for your emergency fund, but the best way to think about it is by asking the question "If I stopped working, how much money would it take to get through 3-6 months?" If you are currently using a budget, this number will be different than your current monthly expenses because currently, you probably have several hundred dollars in extra expenses that wouldn't be needed in an emergency. Just total up the expenses that you would need for necessities.
Where Should I Store My Savings?
Your emergency fund should be stored somewhere that it is accessible, but not too easily. If it is just sitting in your bank checking or savings account, it is too easy to dip into. It is recommended to put this money in a money market account. This will allow you to have access without a penalty to withdraw, but the process to withdraw is more complicated than just pulling out your debit card. It is good to put your emergency fund in something that has a small interest, but the goal is not to make money on this money. You may budget for things such as new furniture or a new-to-you car. Savings like this is okay to keep in a traditional bank account because it will be spent fairly soon and no reason to move it around.
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