Saving is wonderful. The more you save, the less you rely on payday loans, personal loans, credit cards, and other forms of loans. The more you save, the more financially secure you feel and the more prepared you are for your future. But how much do you need to save? Ten percent of your income is a good place to start, but you will want to look at three savings areas to ensure you are saving enough: your emergency fund, your retirement fund, and your dream fund.
Your emergency fund should be your first priority as it will prepare you for any crisis and ensure you will not become dependent on borrowed money. You should have at least three months to six months worth of income in your emergency fund. If you have debts or carry a credit card balance, you need six months of income saved up. If you are in a financially vulnerable spot – you are self-employed, for example – aim for a full year of income. You may have to build this up gradually over time, but do build up this nest egg for yourself.
Your retirement fund should be your next order of priority. How much you will need will depend on your retirement plans and on your current financial status and age. Talk to a financial adviser planner or expert at your local bank (this is usually free) to determine how much you will need and how much you will need to put away to accomplish this.
Your dream fund is where you save for major purchases, such as a car or a home. Try to stash as much as you can in this fund, as it will ensure you have smaller car loans and mortgages to deal with. However, do not sacrifice your emergency fund or retirement money for this fund. You might want to put bonuses or other “surprise money” into this fund.…