Once you know what your goals are, you need to figure out how much money you'll need for each of them. It doesn't have to be an exact number, but having a rough estimate can help you figure out how much you should be putting toward each goal every month.
It's also important to prioritize your goals. Start by setting aside more money each month for the most important immediate goals, while still saving for the others. And then as you build up each fund, you can start putting more money toward your longer-term goals.
Emergency savings: Bottom line: shit happens, and if you don't prepare for it, you're just shooting yourself in the foot.
Saving for an emergency should be an immediate priority. When you're forced to put unexpected expenses on a credit card, it just sets you back even further and prevents you from making progress on all of your bigger saving goals.
The best way to save for unexpected financial shocks is to have two separate emergency funds: a rainy day fund and an emergency fund. A rainy day is a cash you can dip into for an unexpected expense, while an emergency fund is a bigger sum of cash, in case you lose your job, can't work for whatever reason or something else comes up that requires a good amount of money.
Paying off high-interest debt, like credit card debt: When you're trying to save for both short- and long-term goals, paying off debt should be an immediate priority- because the longer you owe money, the longer it'll take you to save up enough for each of your goals,
And we're primarily talking about consumer debt, like credit cards. This doesn't mean other debts like student loans aren't important, but credit cards typically carry very high-interest rates, so carrying that debt around will cost you a whole lot of more money over time.
The way you handle credit card debt also has also an impact on your credit score than some other types of debts- so the longer you carry credit card debt, the harder it will be for you to get bigger loans down the road (like a car loan or mortgage).
Buying a car, buying a house & other short-term goals: If these are things you want to do in the next five years or so, it's important start saving for them now- and to put the money in a safe place where it's not a t risk.
So for these short-term goals (around five years or less), your best bet is to keep the money in the bank. With a saving account, you don;t risk losing any of it (like you would if you were to invest money), and you also don;t face any penalties or fees when it comes to withdraw the money.
You can set up a separate savings account for each goal if you think you may be tempted to dup into the money if it's all together.
If you have an idea of how much car or house you want to be able to afford when the time comes, fire out how much you should be setting aside for each of those goals every month. And if you can't afford to save as much as you'd like to at first, start small and revisit each goal every couple of months.
Once you pay off debt, you will free up extra money that can go toward these other savings goals. Also, reducing your expenses can do the same.
Retirement savings: It's so easy to put off savings for retirement- especially when you're young and retirement seem like a lifetime away, or when you're barely able to save enough for everything else in you life.
But here's why it's so important to start now: the earlier you start saving, the more time your money has to grow and the wealthier you'l be in retirement.
Clark often talks about a chart that shows how a 15-year-old could save just $2,000 a year for 7 years- and them, never saving another penny again, the money would grow to be $1,000,000 by age 65- thanks to the magic of compounding.
The way you handle credit card debt also has also an impact on your credit score than some other types of debts- so the longer you carry credit card debt, the harder it will be for you to get bigger loans down the road (like a car loan or mortgage).
Buying a car, buying a house & other short-term goals: If these are things you want to do in the next five years or so, it's important start saving for them now- and to put the money in a safe place where it's not a t risk.
So for these short-term goals (around five years or less), your best bet is to keep the money in the bank. With a saving account, you don;t risk losing any of it (like you would if you were to invest money), and you also don;t face any penalties or fees when it comes to withdraw the money.
You can set up a separate savings account for each goal if you think you may be tempted to dup into the money if it's all together.
If you have an idea of how much car or house you want to be able to afford when the time comes, fire out how much you should be setting aside for each of those goals every month. And if you can't afford to save as much as you'd like to at first, start small and revisit each goal every couple of months.
Once you pay off debt, you will free up extra money that can go toward these other savings goals. Also, reducing your expenses can do the same.
Retirement savings: It's so easy to put off savings for retirement- especially when you're young and retirement seem like a lifetime away, or when you're barely able to save enough for everything else in you life.
But here's why it's so important to start now: the earlier you start saving, the more time your money has to grow and the wealthier you'l be in retirement.
Clark often talks about a chart that shows how a 15-year-old could save just $2,000 a year for 7 years- and them, never saving another penny again, the money would grow to be $1,000,000 by age 65- thanks to the magic of compounding.
- Compound interest is an extremely powerful force that allows you to earn exponentially larger gain on your money over time- so the money you save now is worth a lot more than the money you save later. Here's a simple example: You invest $1,000 today and earn an annual 5% gain, so $50. That $50 is added to the principal amount of your investment, and then next year, you earn a 5% gain on $1,060, so you earn $102.50. And so on... So, the earlier you start saving, the more your money will grow over time!
- How to start saving for retirement: If you're saving nothing right now, it's OK to start small. Start by saving one penny out of every dollar you make. That's 1% of your income. Then every six months, step it up by 1%. In 5 years, you'll be saving 10% for retirement and making a huge impact on your future.
When it comes to savings for retirement, your best bet is to have the money automatically deducted from your paycheck so you never even seen it in your account. That way, you won't miss it.
If you have a 401(k) at work, start saving money through automatic withdrawals each time you get pair. If your employer offers an employer match, that essentially free money, so try to contribute enough to get that match.
By: Alex Thomas Sadler
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