How much money should I save? Well, developing a comprehensive savings plan will save you the trouble of having to divvy up your money every paycheck. The sooner you plan out your finances and create a safety net, the better prepared you will be for unexpected changes in your life. When deciding on how much to save factors like marital status, current income, spending habits and fixed expenses – among others – will affect your savings plan. In order to make an efficient savings plan, you need to account for all aspects of your finances
Determine Your Net Income
Make a list of all of your financial obligations that remain stable from month to month, such as rent, car payments, phone bill, groceries and dining, etc. These are known as fixed expenses and determine your base standard of living. Fluid expenses like gas money, unexpected events or trips, and impulse purchases should also be accounted for as accurately as possible.
Your net income is your total take home pay minus your expenses, both fixed and fluid. Try to contribute as much of this to your safety net as possible. Limit your expenses as much as possible when first adding funds to your emergency savings account. Your goal at the outset should be to sack away as much money as you can spare to build up your nest egg.
Calculate Your Budget
Create a detailed budget and build in fail-safes for unexpected purchases or short-term financial emergencies. Set realistic amounts based on your monthly income and your fixed/fluid expenses. Appropriate the remainder of your income to your most important savings accounts, and save the rest in an account that is readily accessible. Stick to as strict a budget as you can comfortably accept, and apply any left over money at the end of the month to your emergency account.
Secure Your Finances
As a rule of thumb, aim to build an initial nest egg of at least 3 months of your income in an easily accessible savings account. If you work only sporadically, consider putting away 4 to 6 months of income, in order to stave off long stretches without work.
Automate Your Finances
Set up automatic payments for as many of your bills as possible. Have your pay direct deposited into your bank account. Use separate bank accounts for your fixed monthly expenses and fluid savings. Set up as many of your bills as possible to automatically pull money out of your account when due. Lining up your bills to take care of themselves allows you to focus on more fruitful areas of your personal finances.
Pay Yourself First
Once you have an adequate emergency savings in place, you can begin putting money towards other goals that you may have. Ask your bank about opening multiple sub-savings accounts that will allow you to put a set amount towards your goals each month, whether it's a vacation, major purchase or a private retirement account.
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