When it comes to saving money, not many understand what the best practices are. They question how much they should work towards saving, as well as how much they would need to put away every month in order to meet those goals.
While it’s important to actively save, you need to, first, be aware of what your financial goals are. The overall practices for saving may be similar, but no person’s finances or life situations are the same, so what works for someone may not be the best strategy for you, and vice versa.
That being said, being mindful of these strategies is a great starting point for anyone looking to have more control over their financial future.
A Breakdown Of Financial Goals
As you are doing your research, be mindful that the financial goals of others may not help you reach your own financial goals. There are typically three different ways you can view your goals: short-term, long-term, and far-future.
When planning for your financial future, your short-term goals are just as crucial as your long-term goals. You may not be able to predict expenses that may affect you in the next year or two, but it’s important that you have an emergency fund available to pull from when you need to. These short-term finances can cover areas like taxes, vacations, and unpredicted bills.
When you save for your long-term goals, you are saving for major expenses that may arise within ten years. This could be money used to cover the down payment on your first – or new – home, as well as any significant renovations that need to be done. These finances could even be used to cover expensive vehicle repairs or even buying a new car.
This is money that you should not plan to utilize within the next ten to fifteen years. Some choose to put their money into a savings account that will help their children pay for their tuition after they enroll into college. But this category should mostly be viewed as your support system for life after retirement.
Once you have determined your financial goals, you can better plan out how you will implement practices to save for each of those goals. The rule of thumb that most people follow is planning to save at least 20 percent of your income every month. 15 percent of that should be dedicated to your financial future, while the rest can be invested into your short-term fund.