Do you want to stop stressing out about money and also buy what you want when you want it?
The key is to prioritize these 3 types of savings. If you consistently make room in your budget for each of these 3 things, you will stop worrying about money and enjoy your life a lot more!
1. Emergency Savings
The first savings category everyone needs is emergency savings. Emergency savings, sometimes called an emergency fund, is meant to protect you from unexpected losses of income or unexpected large expenses.
Would you be prepared if you lost your job tomorrow or if you received a $10,000 medical bill? Many Americans would find themselves in big trouble if either of these things happened to them. In fact, nearly 30% have no emergency savings at all.
This is one reason so many people find themselves trapped in debt, paying extremely high interest rates for money they had to borrow because they did not have an emergency fund.
To protect yourself against taking out high interest debt, you need to have an emergency fund that can pay large, unexpected bills or pay for your regular bills during times of lost income.
We recommend that your emergency savings is equivalent to at least 3 months of your income. So if you earn $5,000 per month, save up at least $15,000 for your emergency fund.
The only exception to building an emergency fund this large would be if you already have high interest debt. In this case, build an emergency savings fund of one or two thousand dollars and then aggressively paying down your debt. Once you are debt-free, then you can build up your emergency savings to that 3-month level.
Emergency savings will help alleviate the stress you carry regarding your finances. You won’t need to worry about every purchase you make and large, unexpected expenses will not stress you out any more! Because you have saved up this extra money, you can have peace of mind during these times.
The sooner you build up a healthy emergency savings, the sooner you will feel confident and at peace in your financial life.
2. Retirement Savings
The second savings category that everyone needs is retirement savings. Saving for retirement is very important because people are living longer than ever and the assistance provided by the government is insufficient for most people to have a comfortable retirement income.
Additionally, it is impossible to predict what may happen in the future. The economy may take a downturn and you could be forced to retire early. The government may significantly decrease social security benefits. You may get sick and incur very high medical bills throughout your retirement. The list goes on.
So it’s wise to save for retirement to prepare yourself for whatever the future may bring.
Too many people make the excuse that they can't afford to save for retirement, but that is rarely the case. As long as you have a steady income, try to set aside something for retirement. You'll thank yourself later.
The best thing about retirement savings is that your money can make tons more money over time. All retirement accounts include investment funds where you can invest your money and watch it grow!
Someone who worked from 1981-2021 (40 years) and invested just $150 per month in an S&P 500 index fund would have accumulated nearly $1.2 million! Although they only contributed $72,000 over 40 years, their investments multiplied their money 16 times!
Not only would this person retire as a millionaire, they also get to stop working up to 10 years earlier than they would have without retirement savings.
Saving for your retirement is well worth it!
3. Fun Savings
The third savings category everyone needs to have is fun savings! This will look different for everyone.
My family loves to travel so we budget several thousand dollars every year for vacations. We also save for various impulse purchases we may want.
The last thing we used this for was a new set of stainless-steel cookware! My wife decided she wanted new pots and pans, we talked about it, and the next day we went shopping since we already had the money saved up! That's a lot better than going into credit card debt or fighting about whether or not to spend the money!
Whatever it is that you want, you should set aside some money for it each month so that you can buy it with cash. Even when you want to upgrade your car, we recommend saving up at least 50% of the value of the new car you want to buy.
When you save money for the things you really want, you ensure that you don’t take out unnecessary debt which will hurt your finances later. It also makes budgeting more fun and motivates you to stick to your budget! Every month you stay within your budget, you are making greater progress towards buying that thing you really want!
How to Save More Money Than You Ever Though Possible
I'm sure you would love to have emergency savings, retirement savings, and fun savings. Who wouldn’t? But too many people find themselves living paycheck to paycheck with very low balances in their savings accounts.
If you struggle to save money, the best way to save is by maintaining a budget. When you budget your money effectively, you can prioritize building up your emergency, retirement, and fun savings.
Have you tried budgeting before and gave up?
Or are you not even sure how to start budgeting?
You're not alone. Managing money is hard for most people which is why 80% of Americans are in debt and could use help with managing their money.
The good news is that budgeting and saving money isn't hard anymore once you learn the right strategies and get a little support from someone who really knows what they are doing.