Chapter 5: Establishing Savings
Part of every healthy financial picture is an emergency savings account. Having money available will prevent you from turning to your credit cards or other expensive loans in times of financial crisis. A good rule of thumb is to have three to six times the amount of your essential living expenses readily available.
Repay debt while saving for other goals
Saving for retirement while repaying debt is highly recommended. Such employer sponsored retirement plans as 401(k) and 403(b) plans have many advantages that can help you maximize your dollars, both in the present and the future:
- Contributions reduce your taxable income.
- Pretax dollars earn interest.
- Many employers match contributions up to a certain percentage, so you lose free money if you don’t take advantage of the plan.
Repaying debt while saving for other goals also makes sound financial sense:
- You won’t have to rely on credit cards for unexpected expenses.
- You get a jump-start on establishing healthy money management habits.
Saving money doesn’t happen without taking action. There are many painless and surefire ways to begin a savings routine:
- Begin with whatever you can afford, even if it’s only a few dollars.
- Set up an automatic transfer from your checking to your savings accounts, or use payroll deductions right from your paycheck. What you don’t see you don’t miss.
- Save all or a portion of each raise you receive.
- Deposit bonuses, income tax refunds, and monetary gifts from birthdays, holidays, or other special occasions into savings.
- Put yourself on a short-term basics-only program. Commit to buying only what you absolutely need and put the difference into savings.
- Save all of your loose change. A quarter here and a dime there add up fast.
- Once you’ve paid off your car or other installment loan, put the same amount in savings.
Once you have a savings plan in place, monitor it regularly. Watching your nest egg grow is motivating. Take pride in what you have achieved. And don’t panic or give up if you experience a setback – readjust your budget and try to make it up next month or in future installments.
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