How to Prioritize Your Savings
Everything – including savings – gives you a better outcome if you pre-planned it and focus towards a goal. We all know that putting a portion of your income into savings is essential to ensure a financially stable life, however, not everyone does it with a clear strategy in mind. It is extremely important that you prioritize your savings not get caught up in increasing your savings account balance when there are more important financial aspects to focus on. Let us list down the priorities when saving your income.
1. Emergency Fund
First and foremost, you need to have an emergency fund where you stack at least 2 times your monthly salary’s worth money securely in a savings account which you do not withdraw unless for an actual emergency. This will give you the needed ease of mind when it comes to unexpected emergencies, and the compound interest that it brings will be a soft investment method for the future as well.
2. Retirement Fund
Although we would like to avoid thinking about it, all of us grow old and come to a point we won’t be as vigorous and capable as we are in our younger years. Therefore, you owe it to yourself to save for your less capable years, so you can enjoy your retirement. If your employer offers a 401k plan, make sure that you contribute the needed amount for it. If you can afford to save more money, then starting an external retirement plan will further ensure your financial security when you retire.
3. Investment Fund
It does not matter how large or small it is, for a well put together a financial strategy in your life, you need an investment fund which will help you grow your stability without an effort from your side. You can start with a fixed deposit and then invest in more complicated strategies as you get knowledgeable and experience in the field of investing.
4. Entertainment Fund
This is something that most people forget, and one of the biggest reasons why savings seem too much of a burden. You need to have an entertainment fund for the experiences that you desire to have but needs a substantial amount of money. This could be taking a vacation or even buying something a little out of your usual budget. When you have an entertaining goal in mind, your saving habit will no longer feel like a burden.
It is, however, important that you do not keep any debts hanging while you save. Try to pay off as much as your debts you can while saving even the least amount of money you can afford for your future financial stability.