Managing money can be a little scary. We know that.
Between planning for long- and short-term savings goals and our daily expenses, putting aside money for the future can become overwhelming. Add in the possibility of unforeseen costs and emergencies, and the anxiety over personal finances can significantly impact health and contribute to poor decision-making — especially if you aren’t taking the necessary steps to save properly right now.
To get ahead of any issues and feel more confident in your finances, it’s important to maintain a few different types of savings, which we have categorized into three “buckets.” By setting up dedicated savings accounts for now, the future, and emergencies, you can better stay on track of your goals and be prepared for the expenses you don’t expect.
Check out these tips for how to properly save for each:
Saving for Now
Saving money for now is also known as saving for your short-term goals. This bucket of savings is for expensive costs that can be achieved more easily, and in less time, than a long-term goal. It may be a certain style of car you’ve had your eye on for a while now or the big family vacation you plan each year. These types of purchases aren’t necessarily needed, but they may be important to you for different reasons, so they’re worth prioritizing in the short-term. But it’s critical to pay for them in a smart way.
The best way to save for now is by setting aside a portion of your income every month. Make sure your savings budget reflects your own personal wants and needs. Be realistic in how much you’re putting away by doing some calculations to ensure that you have enough for your costs when the time comes. This strategy is a lot less stressful than dedicating one entire paycheck to pay for that trip when the invoice shows up.
Other short-term goals can be as simple as a credit card payment, your yearly taxes, or rent. These are essential payments that will occur monthly or yearly, so save early and often to make sure you don’t fall behind!
Saving for Emergencies
Saving for emergencies is a crucial aspect of finances that many don’t prioritize. Life comes at you fast, and whether that means a fried computer that needs to be replaced or a broken bone that comes with a hospital bill, you don’t want to be paying out of pocket.
Without emergency savings, a minor issue can turn into a major problem — or major debt. This savings account is money put aside specifically for these circumstances, and not to be touched otherwise. Emergency savings can be used for small or large payments, but the purpose of using this money is that it is for a bill that is not a part of your routine expenses.
Just like a personal savings account, your strategy should be to proactively build funds in your emergency account. Set a goal for yourself — maybe, it’s $5,000 — and put aside enough money to reach that goal within a predetermined number of months. Once you reach that goal, you can re-strategize how much you’d like to put into it per week/month/year.
Like any savings account, consistency is key. Make regular contributions to your emergency account and allow it to grow gradually.
It’s also important to note that “emergency” has a different definition to everyone. You shouldn’t be afraid to use this money once you have it if you need it. But if you do spend it, just work to build it up again.
Saving for the Future
Saving for the future, or your long-term goals, is considered your “big picture” costs. These are goals that may take years to achieve, like paying off a mortgage or your child’s college tuition. These goals require a lot more money than short-term goals, but still need the same attention to ensure they properly grow.
Take advantage of any opportunities to increase your future savings. For example, most companies have employer-sponsored retirement programs, such as 401(k)s and will often match your contributions. If you can’t access a retirement plan at work, contribute to your own Roth or traditional IRA.
You can also look to stocks, which are a popular way to grow money over a prolonged period of time. Both a professional financial advisor and financial planning platforms can help you manage investments.
Long-term savings will ultimately make you more confident in the financial future for you and your family, but it’s important to put in the work now. Being successful when it comes to saving money requires constant management and attention, so make sure to budget for the future just as much as you do for the present.
Saving doesn’t have to be so stressful. Just follow these steps to grow each savings bucket consistently. And to help you achieve your tax and accounting goals, contact Brilliant Accounting.