How To Budget And Save Money
We all have a variety of needs and goals in our lives and money is one of the tools we utilize to meet these. Most people make the mistake of simply saving money in one account and utilizing it when necessary. If, however, we separate and compartmentalize our money for different purposes, we can better determine how it should be invested or spent.
After we’ve established what compartments we need, we can determine how much money to put in each fund, for how long and what amount of risk we want to take.
The following information provides descriptions of the different kinds of funds your family might need and discusses how each should be treated.
Emergency Fund
The first line of defense for a family is the emergency fund. How much money should you put into it? One common guideline is three to six months of the monthly budget. This fund will pay for car or house repairs, or get you through tough times if you get sick or lose a job. The money has to be immediately available and can’t be put at risk in the stock market or tied up for any length of time, such as in a certificate of deposit.
College Fund
The amount of risk in this fund is tied to how much time you have before you need it. Younger children can have a college portfolio that takes more risk, because you have more time. Older kids headed to college within the year should have fairly liquid money that isn’t prone to stock market volatility.
Save-to-Spend Fund
This fund is for vacations, big ticket items or buying a new house. The risk you take with the money depends on when you’ll need the money by. By not commingling this money with the emergency fund, you’ll probably spend less and feel good about being in control of your big ticket spending.
Long-term Savings
Anything that can be planned for over a long period of time, such as seven years or more, could qualify here. Since the time frame is longer, the ability to take risk is greater as well. If you dream of starting a business or one day purchasing your dream home, save that money is this category.
Retirement Funds
The number of years until your retirement, combined with your willingness to risk, should decide which investments that you’ll choose.
Setting the monies apart by their function makes tracking performance toward the goal realistic and attainable.
Related Articles
- How To Organize Your Finances
It is a waste of time, energy, paper, and usually money to have a lot of credit cards, bank accounts, brokerage accounts, or insurance policies..... - Reverse Mortgage - The Pros And Cons
Reverse mortgage is gaining popularity to seniors because it provides a solution to those who cannot keep up with the traditional mortgage. Nowadays, reverse mortgages.... - Making Finance Easy: Getting Organized
Simplify everything! Can you name your credit cards and their balances without looking them up? Can you name your bank and brokerage accounts without hesitation?.... - The ABC’s Of Your 401k
If you feel confused about your 401(k) — what it is, why you should contribute to it, and how to invest the money in the.... - Financial Planning Tips For Seniors
If you are nearing retirement, it is time for you to know if the money you have saved is enough to help you get through....
