Saving Carefully For a Planned Future
Saving money is something everyone should do, no matter what their age. A savings account is something to have for multiple reasons. There is short-term saving for the day-to-day expenses and longer-term expenses such as for retirement or a large purchase. Saving is extremely important for long-term happiness and security!
Short-Term Savings (1 year or less)
Short-term savings accounts are the things for day to day expenses. There is no hard and fast answer for how much to save. In the past, it was easier to estimate monthly expenses with stable paychecks, but expenses go up every month which adds stress and difficulty. Sometimes an emergency will come up and take what you have saved. When that happens, you might need to get a short term loan to help out with expenses. Just make sure you pay it back quickly and correctly.
Divide the paycheck up to pay the bills and the leftover goes into the different savings accounts. The short term savings should be for more immediate needs. The determined need date combined with the ultimate date of need. Short-term savings can include planning for a vacation or making that purchase of expensive shoes. Even setting aside $20 a month means you are $20 closer to your short-term goal.
It is not easy to save at times and 10% and 25% are numbers people throw around as the “correct” amount. The correct amount to save is whatever the leftover amount is from paying the necessary expenses. Forbes.com recommends a 4% withdrawal rate for savings as a good benchmark for all people regardless of the amount of income. The amount withdrawn is adjustable as needed or required.
Planned Longer-Term (10 years or less)
A long-term savings is for things that require longer times to save for such as a new truck for work. Planned longer-term savings is planning further out which is more difficult to figure out. While financing is available for vehicles, this only goes so far when the paychecks are small. Going into such a purchase with a large down payment allows for less time to pay back any loans and will give better rates for the repayment.
Long-Term Savings (Lifetime)
Retirement accounts are one of the main things to start with any available money. Retirement is when there is less of a chance to work and there is more of a need for money. Even adding $20 a month to an account is a start towards this goal. There are also different savings accounts designed for retirement savings.
401(k)
A 401(k), started by your employer, is a good vehicle to start saving. The money, automatically taken out of your paycheck, often will match the employer’s contribution or they will provide a percentage of your investment as added incentive to keep your employment.
IRA
Multiple IRAs are available and contributions occur on a yearly basis. These invest a yearly amount into securities like mutual funds that you and a financial advisor select and contribute to every year. The amount contributed depends on your age; if you are under 50, then $6,000 a year; if you are over 50, then $6,500 is the maximum amount a year.
Unexpected Savings (Anytime)
Saving for those unexpected things is a good idea as you never know what might happen in the future. You might need to buy new tires because you keep driving over nails, or there is an unexpected medical expense. You never know what is coming and having money saved will save you when trouble strikes.
Below are some different types of loans that a consumer can get.
Types of Loans
Personal Loans
Getting a personal loan is another option for when life strikes unexpectedly. They are reasonable and you will have to pay it back with interest. These loans come several different ways and are relatively easy to get, especially if you are working with your personal bank.
Unsecured Personal Loans
No collateral, like your car, backs this type of loan. These are issued based on your credit score and proof of your ability to pay.
Secured Personal Loans
A secured personal loan requires the use of the personal property to back up your ability to pay. A secured personal loan uses things such as your home or a car.
Fixed-Rate Loans
Fixed-rate loans provide the person requesting the loan with a fixed interest rate. These types of loans are easy to pay back as they do not change the amount you will pay every month.
Variable-Rate Loans
A variable-rate loan, secured at a lower interest rate, fluctuates with the market and the interest rates of the bank or financial lender.
Final Thoughts
As you can see, saving money is always a great option. A savings will help you when money is tight. When those unexpected emergencies happen, as they always do, being able to get a loan is a necessary help also.
