Savings’ Goals

Savings are important and we have a lot to save for. Most of us need emergency savings covering 6 – 9 months of expenses for an unexpected financial need. We need medium-term savings for expenses such as a home down payment or college tuition. Lastly, we need a retirement account.

A good goal is to save 20% of your gross income. This can be made more manageable by saving pretax money through a workplace retirement plan. Remember, any savings are better than no savings. If 20% isn’t possible, aim for 10% or 15%. There are things you can do to increase your savings.

Make your savings as automated as possible. Have automatic transfers of money from your checking account into your savings account. You can also deposit that money directly from your paycheck into your savings account and your retirement accounts.

When you receive bonuses put a certain amount immediately into savings whether that is retirement, medium-term, or your emergency fund. Treat a raise the same way. When you receive a raise put a percentage of it automatically into savings. These are painless ways of increasing your rate of savings.

Obviously, the less you spend the more you save. Make a budget and review it regularly. Do not spend automatically. Review your regular expenses from utilities to entertainment to transportation and see where you can scale back.

The purpose of your savings should determine where you locate them. Your emergency fund should be quite liquid. Keeping this fund in a high-yield savings account is a good option. It is a good idea to keep it in a separate bank from your checking account, so it isn’t temptingly accessible.

Your medium-term savings can be less liquid and should be in medium-term vehicles such as a 529 account or a brokerage account in stocks and bonds.

Typically, retirement savings are in retirement accounts such as a 401(k) or an IRA account. These are tax-advantaged accounts. The fact that employers may match a certain percentage of what you invest in an employer 401(k) plan is a huge benefit.

Your personal savings plan will be determined by your long-term plans, age, and preexisting wealth. Start early to give yourself as much time as possible to save and your money as much time as possible to grow. Develop your plan with help from your financial advisor.