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Saving is very important because it can come in handy during tough times in your life. If you have an emergency, your savings can help save your life or anyone in the family. It keeps you from having to put yourself through debt in order to pay off the unexpected need.
Your savings can also finance any dream that you have. We all have plans for the future and most of the time, they need a certain amount of money to make them come true. This is why your reserve fund will play a huge role in your future. While we will keep on working until we retire, there is a certain amount of security in knowing that you have money stashed somewhere to help you in times of trouble. Not only that, the elimination of that stress in itself is already something.
How to prioritize what you will save first
However, some people struggle with the concept of saving because there just seems to be so much to save up for and we only have a limited income to work with. Among the thing that you need to save on includes:
household maintenance and repairs
health care fund
special events (like birthdays and life milestones)
The list will go on and on and you definitely cannot allocate your whole income to finance all of these. After all, you still have to finance the various categories in your household budget. But how can you satisfy all of these saving goals with the income that you have? Simple. You prioritize.
Here are some tips when you are prioritizing your saving goals.
Build your emergency fund first.
Before you make any saving goals, make sure you have enough in your emergency fund. Even if you start saving for a house, for instance, when the unexpected happens, you will end up using those savings. Given that, it is best to just put it out of the way and save for your emergency fund first.
Know what is important to you.
Look into the future and identify the things that you want in your life. It helps to put them in a timeline so that you can see which ones you will need in the near future.
Identify your short-term and long-term goals.
The short term goals are those that you want to achieve in the next 5 years while those beyond that can be considered as your long-term target. For instance, buying a car or a home can be your short term goals. Your long term can be your retirement and the college fund for your children.
Try to forecast the expenses that you have to make every year.
These include your household and car maintenance costs. It can also include birthday parties, seasonal events, etc. This can be saved separately from your emergency fund.
Tips to meet all your saving goals
As you can see, there is a lot of things that you need to save up for and it takes quite an effort to make sure that they are met. While it all seems confusing to see them all listed down, all you really need is to organize it a bit. Here are some of our tips to make this happen.
Detail your saving goals.
As mentioned above, you want to put it on a timeline so you know which is needed immediately. Don’t just label the goal, put definite dates and the amount that you need to save.
Determine the amount that you need to put aside every month.
This will help give you an idea regarding the money that you will need to raise. If you have to grow your income or cut back on certain expenses, that can be done. There are online saving goal calculators that you can use to help compute this. We recommend that you use the ones from Calculator Web.
Use a budget plan.
When you have identified your saving goals and the amount that you have to put aside, you need to put that amount in your monthly budget. This will ensure that it will always be funded.
Put your savings in sub-accounts.
You want to keep your saving goals separate so you can keep yourself from mixing them up. You don’t want to use up your emergency fund to fix your car or for the down payment on your new home.
Pay off your debts.
Some people may be surprised by this but paying your high-interest debts is a form of savings. First of all, most debts have a higher interest rate than the traditional savings account. Getting rid of those interest payments should help you save money. If you can restructure your debts so it becomes a low-interest debt, you can already save money while paying it off.
It is important that you do not get discouraged by the small amount you save. If you have a limited income it is okay if you can only put a few dollars on each account. A small amount is better than nothing. If you stick to your plan and you consistently contribute to it, our savings will grow over time.
Here is a video from eHow that discusses what a savings account is and the benefits that you will get from putting your money in a bank.