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Savings Basics

Image representing the 'Savings Basics' one pager Having money in savings helps to build financial security. Without money set aside for the future, it will be difficult to meet emergencies; pay large, infrequent bills; or build resources for important longer-term goals, like a car, a home, a college education, or retirement.

 


Why You Should Pay Yourself First

The golden rule of savings is to pay yourself first. By adding to your savings account on a regular basis, you will gain a sense of control over your financial life.


Steps to Wi$ing Up – Step 5-1. Keep Your Financial Goals in Mind

List your top three financial goals. Your financial goals provide a roadmap for the future.

First Stop: Emergency Savings

Life is unpredictable. And when it comes to money, it’s always a good idea to have an emergency supply of it! Most financial advisers recommend that we have emergency savings equivalent to three to six months’ worth of living expenses, however, some recommend a fund to cover eight months’ living expenses.


Steps to Wi$ing Up – Step 5-2. Create an Emergency Fund
  1. Start by doing the math. An emergency fund is intended to cover your basic living expenses should you experience a financial emergency, like losing your job or other source of income, or experiencing an unanticipated catastrophic expense —perhaps a medical expense or a major household expense.

  2. Once you know that monthly figure, multiply it by three or six or eight, whatever you believe is the goal you want to achieve in establishing your emergency fund.

  3. Decide how long it will take you to build up your emergency fund. ! Take your time, and be realistic about it.

  4. Designate a special savings account as your Emergency Fund. Select an account that will accrue interest or earnings and one that offers liquidity so you can withdraw funds when an emergency occurs.

Second Stop: Set-Aside Accounts

Set-aside accounts are a place to put money that you know you will need in the future, instead of just keeping it in your primary checking account where using it for other purposes is too easy.


Steps to Wi$ing Up – Step 5-3. Create a Set-Aside Account

Create a set-aside account for yourself if you know that you will be paid
irregularly during the coming year.

The Time Value of Money

Money saved in an interest-bearing account grows by itself. Money that earns interest grows because it compounds over time. Compounding means that you earn interest on your original deposits and also on the interest that your deposits have earned.

The Action Plan is a critical exercise that will help you turn the lessons learned in this chapter into action steps

My action plan for Savings Basic’s is to establish a set-aside account for income and or expenses.