Virtually everyone agrees that saving money is an important and healthy financial discipline. Perhaps a general sense of security is a good enough starting motivation for saving, but eventually it’s a good idea to think through your specific goals. Here are 4 crucial savings goals to set that you’ll be glad you created.
1. Emergency Fund
Perhaps the most basic (and important) starting place is building up an emergency fund. Experts don’t all agree on exactly how much your emergency fund ought to be, but typically saving 3-6 months’ worth of expenses is recommended. As the name suggests, of course, this type of savings is for emergencies only, such as dealing with an unexpected car issue, an HVAC repair when your AC suddenly goes out or (as mentioned above) simply paying the bills when you find yourself between jobs. Having an emergency fund is key to finding financial peace.
2. Healthcare Savings
Having money set aside for medical procedures (which can get so pricey) is a great financial goal. You might have some anticipated medical costs in mind (such as having a baby), but you can also just treat this as a sort of specialty emergency fund. Opening a Health Savings Account (HSA) is a great option for achieving this goal. An HSA allows you to save money pre-tax for the specific purpose of covering medical bills.
3. Education Savings
Education is another expensive part of life for so many. Whether you’re setting money aside for your own education or for a child’s future education, starting as early as possible is a good idea (especially if you are investing some or all of these savings). Similar to an HSA, a 529 plan is a great savings account option that allows you to save money specifically for education (for yourself or your children). Unlike an HSA, a 529 plan’s contributions are not tax-deductible, but when you withdraw the money later on, your earnings will be tax-free.
4. Retirement Nest Egg
Saving for retirement is one goal that almost everyone has in mind, but it can be hard to know how to get started. First, if your employer offers a 401(k) plan of some kind, make the most of it! You can also open up a Roth IRA on your own and take advantage of the tax-free growth it offers. Whatever you do, be sure to understand the level of risk you can tolerate so you don’t find yourself taking unnecessary risks with your retirement nest egg.
Once you’ve resolved to save for these important financial goals, the question remains as to how to best go about it. First, consider diversifying your savings into simple savings accounts, higher-potential investments such as mutual funds and tools such as an HSA or 529 plan. And finally, consider the vast array of savings apps that now exist to help individuals meet their financial goals. Carlton James, Director at GBTI Bank, writes that “today’s savings apps boast full-spectrum functionality, with some nudging users toward healthier spending patterns…” Find a few apps that help you budget and invest your money.
Getting started on these 4 crucial savings goals will help to give you a sense of security and confidence in your financial future.