Financial Literacy 101: Saving

Financial Literacy 101: Saving

Dec, 13th 2016

The concept of saving is pretty simple. You’ll create conditions where you earn more money than you’ve spent, and put the extra aside for something in the future. It’s the single greatest tool you have to build wealth and protect yourself against emergencies and unplanned expenses, as you’ll see.

Saving for Emergencies

It’s important to have an emergency fund available. No matter how carefully you plan, unexpected expenses such as car repairs or medical bills will always come up. If you have a pocket of “emergency savings,” you can dip into them with no issue and rebuild the pocket at your leisure. Otherwise, you may have to take on new debt—which as you saw in our previous installment can work against you. Try to save at least a couple thousand dollars for your emergency cushion—even if it’s only five dollars at a time.

Saving for the Future 

You’ll also want to save for the “future” in various capacities. For example, you may want to save money to buy something substantial like a new car. It’s an easy way to plan ahead and set a course for yourself; for example, you could commit to saving $100 a month until you have $1500 for a down payment. Later on, you’ll save money for your retirement, or to build wealth; here, you’ll focus on accumulating savings that build compounding interest, but we’ll get into that later.

Creating a Blueprint for Saving 

Saving effectively requires a budget. You need to know exactly how much you’re making, and how much you’re going to be spending. Ideally, you’ll create a “minimum savings” goal for yourself, mandating you save a specific amount or more every month (similar to minimum payments on credit cards), but this depends on your long-term goals. Document your necessities first, prioritize paying down your debts, and after that, focus on saving an emergency budget. Once you have an emergency budget, you can focus on saving for other items, such as a future purchase or your long-term financial future.

As always, if you’re interested in learning more about financial literacy and how to get your finances back on the right track, be sure to join the Insedia community!

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