You work hard for your money. And once it lands in your bank account, there are so many things you want to do with it.
Although you have to pay your most important bills first, it’s also important to savcoe money for your future. In other words, pay yourself first.
So before you blow all your money on expensive must-have items, think about stashing some of it beforehand.
Here are five important savings goals to keep in mind:
1. Emergency fund
Savings Goal: 6-9 months of living expenses
You never know when the unexpected will set you back financially. An emergency fund can be a good way to prepare ahead of time so you don’t have to use debt when you need a car repair, you lose a job, or some other costly situation arises.
It’s a good idea to aim for saving between six and nine months’ worth of living expenses. You don’t have to save all of that at once, however. Start with a small amount each week, and gradually save more as your circumstances allow.
While keeping your emergency fund in a savings account that allows for easy access is a good place to start, you don’t have to keep your money in this “traditional” type of account. Consider keeping four to six weeks’ worth of living expenses in a regular, liquid savings account and putting the rest in an account with a higher yield. For some savers, according to a paper published in the Journal of Financial Planning in 2013, it makes sense to keep a portion of a long-term emergency fund in a taxable investment account.
Determine your own risk tolerance, and decide where it makes sense to keep your emergency fund, based on your ability to sleep at night and how quickly you think you need to access the money.
2. Retirement savings
Savings Goal: 15 percent of income
Do you save money regularly for retirement? If not, it’s time to make that a bigger priority.
The Center for Retirement Research at Boston College says that you should save about 15 percent of your income to retire comfortably.
Like many millennials, you are probably taking advantage of your employer’s 401(k) plan. However, you’re probably not putting in much more than the bare minimum.
Thanks to compound interest, the dollars you put away today become much more valuable when you reach retirement.
If you earn $50,000 per year and save three percent of your pay with a three percent employer match, you are saving $250 per month. Or, $3,000 per year.
And if you do the same over 30 years with an average seven percent return on investment, you will have just over $300,000 saved.
But how far does $300,000 go for retirement, especially after inflation takes its toll?
If you want to maintain the same standard of living in retirement, that is the equivalent of six years of income in today’s dollars. And with life expectancies increasing, you’ll most likely need a lot more than six years of living expenses when you hit retirement age.
3. Home down payment
Savings goal: $50,000 (or 20 percent of your future home’s price)
Home prices have outpaced wage growth for a while, according to RealtyTrac. That’s making it harder than ever for young people to buy their first home.
While some lenders will give you a loan with less than 20 percent down, it’s the target you should save for to ensure you can really afford the home. Plus, you’ll avoid costly private mortgage insurance.
The median home price in the United States as of June 2016 is just under $250,000, according to YCharts. And 20 percent of that is $50,000. That would leave you with a mortgage payment of around $1,000 per month (not including taxes and insurance).
Keep in mind, home prices vary dramatically between cities and states. Take a look at homes in your market so you can learn what you want in a home and how much it costs.
Then, set 20 percent of that as your target when you save money for a home.
4. New car fund
Savings Goal: $26,000 every 11 years
If you are already paying off student loans, do you really want to carry more debt for a car? Not if you can avoid it by planning ahead!
According to Kelley Blue Book, most new cars cost between $20,000 for a compact sedan to $55,000 for a midsize luxury car.
Let’s assume you are responsible with your spending and want a moderately priced, quality vehicle. We’ll use $26,000, the average price of a new, small SUV, as a target savings goal.
As of last year, the average car in the United States is about 11.5 years old according to a 2015 report from IHS Automotive. If you want a new car, as opposed to a less expensive used car, you should save about $200 per month in a car fund to buy a new one every 11 years.
Or, if you want to save money in the long-run, consider living without a car entirely.
5. International travel
Savings Goal: $3,000 per year
Even while paying off debt, sometimes you just want to get out there and travel.
Through travel hacking and serious budgeting, an international trip can cost a few thousand dollars. Between airfare, accommodations, meals, and entertainment, it adds up fast!
If you have the vacation time and money to take a big trip each year, it is easier to save money a little bit each month. That way, you can pay for the trip out-of-pocket with cash rather than risk credit card debt.
You should put away $250 per month if you want to budget $3,000 per year for an annual international trip.
Prioritize creating a plan to save money
Saving money doesn’t happen by itself. And it may not come naturally to some people.
You have to work to save money with a focused effort. However, saving shouldn’t be your only financial goal. It’s just one piece of the puzzle.
Now that you know some common savings goals, you can get to work making it happen.
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