It’s normal to get advice to put money into savings, but a lot of people don’t know where to go. It is crucial that the money you save has a clear objective, so that you can find the best way to grow that money and start building wealth.
Knowing the aim of any form of savings and investment, along with each one’s best timing, will help you know how to prioritize when you start putting away capital.
1. Prepare for Your Emergencies
Your emergency fund will be useful to cope with significant financial incidents. For instance, loss of a career or an unexpected medical bill. Create a dedicated budget for items like home and auto maintenance, and set aside the money outside of your emergency fund.
If you’re a self-employed individual or a single-income family, you may want spending saved closer to the year’s value. When you were to be laid off that would give you something of a buffer.
2. Retirement as the Main Focus
You can have more aggressive investment options for your retirement accounts while you’re younger but it’s a smart idea to transform those into more cautious options when you get closer to retirement.
If you have made progress with your emergency fund at least, you can work on saving to retirement. A financial planner will help you determine how much to put away, so 15 percent of your earnings is a decent goal to aim for. You will slowly work up to that as you get promotions and pay off student loans.
3. Work Toward Other Goals
The targets for these goals really should depend on where you are in your life and your personal situation. When in the next few years you intend to purchase a new house then it will come first. When you get married early, then your top priority will be to save for your honeymoon. Saving up for any of your big expenses is a smart idea, whether it’s a home remodel or a dream holiday.
4. Start Investing to Build Wealth
Each person will have slightly different priorities, but no matter what those priorities are, your retirement will come first, and your emergency fund. You can then concentrate on your other goals, and create wealth.
Once you have established your goals, you can create a chart or sheet of excellence that will allow you to monitor your progress towards your objectives. With a good plan in front of you, it’s easier to stay on course.
