When you decide to start working on your finances, a good first step is to beef up your emergency fund.
This makes perfect sense. An emergency fund is the money you set aside specifically to use for unexpected expenses or emergencies. This savings account is not to be used as part of your regular budget, or for unnecessary things like going out to dinner or buying a new outfit you’ve had your eye on. In case you need further clarification, emergency fund money is ONLY to be used for true emergencies, like if your car breaks down, your water heater bursts, or you’re hospitalized for an injury.
Experts say you should save three to six months worth of your salary in your emergency fund. This way, you’ll hopefully avoid going into debt if unexpected expenses pop up. Once you’ve accomplished this, what next? Should you keep saving even more for emergencies? You can if you want, but, perhaps it’s a better idea to pat yourself on the back and move onto other financial goals. Take a look.
Consider Your Life’s Path
Now that you’ve got your financial foothold established, things are about to get more exciting. It’s time to establish some long-term goals. For starters, ask these questions to help you decide what to focus on next.
What Are Your Current Employment Goals?
Are you happy in your current job? Or, perhaps it’s time for a change. After some self-reflection, if you realize you’re not happy in your career or job, maybe you can look for a new job, go back to school, or shift careers.
Where Do You See Yourself in Five Years?
This question can yield a variety of answers because there are a lot of different factors that may play a part. For example, if you’re in your twenties, you may see yourself buying a house in five years. Or, perhaps you recently got married and in five years you envision having children.
What Do You Plan on Doing in 10 to 15 Years?
Once again, where you see yourself a little further down the road depends in part on what you’re doing now and what long-term goals you’ve outlined for yourself. Maybe in 10 to 15 years you’ll be thinking about saving money for your child’s college education, or even buying a vacation house. We can dream, right?
How and When Do You Plan to Retire?
Do you plan to retire at some point? Assuming the answer is yes, then the next question is: do you have a retirement fund? If not, now is the time to start one.
First off, it’s a wise idea to take advantage of a workplace 401(k) plan. If you’ve got one, experts recommend contributing the maximum amount. The 401(k) contribution limit for 2017 for those under 50 is $18,000 and the IRS announced that this is increasing to $18,500 for 2018. But, perhaps the biggest perk to an employer-sponsored retirement plan is that many of them have an employer match. This means that whatever you contribute into your 401(k), your employer will match that amount up to a certain percentage. Hello, free money!
Most employers will match dollar-for-dollar, up to 6%. Ask your employer to find out what type of match your company may offer and how you can take advantage of this benefit.
If you don’t have a 401(k) option, you can still go the route of an IRA and open your own retirement account. If you’re under 50, the contribution limit for 2017 and 2018 is $5,500. And, like with a 401(k) plan, it’s recommended that you sock away the maximum amount for your future.
How to Accomplish Your Goals
Once you have a better sense of your life goals, you’ll be able to prioritize your savings and achieve these financial goals.
Just know that – no matter what your next goal is – the first thing you should do is set up a new savings account. This will help you keep your regular savings separate from your emergency fund. And this way, you’ll never accidentally tap into the wrong pot of money.
To make this even easier, consider setting up a bank account that will help you grow your savings faster. Chime, for example, offers an Automatic Savings feature, which will help you save money without even thinking about it. All you have to do is swipe your Chime debit card to pay for your purchases. Chime then rounds up your transactions to the nearest dollar. The difference is deposited directly into your Savings account. While this may not seem like much since it’s only a few pennies here and there, it can add up to a few hundred dollars over the course of a year.
But this isn’t the only way to save. You can also set up automatic transfers to get into the habit of paying yourself first every time you get paid. In fact, Chime’s Save When You Get Paid feature is a great way to do this. It automatically sets aside 10% of your paycheck and puts it into your Chime Savings Account.
Choosing a bank with no fees can also help you keep more of your money. For example, Chime has no minimum balance requirements, no monthly fees, and zero overdraft fees to worry about.
As you can see, every little bit helps as you begin to save money. Are you ready to save up for your current and future goals?