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You know you should be saving money… but when you stop to think about it, you start wondering, what on earth is it that you’re saving money for? After all, isn’t it better to enjoy your money now? You can’t take it with you (as you hear people say all the time).
Sure, you should be enjoying your money, but enjoying money doesn’t mean spending it all. It means spending what you can afford, while saving for things that need to be saved for.
Anytime I hear someone say, ‘I don’t have enough money saved for that’ or ‘I didn’t save for it at all’ I cringe a little. Because so many people live in a reactive way – that is they react to the events that happen as they come up, instead of planning ahead.
When you plan ahead, especially financially, you have the freedom to actually enjoy your money in the present because you know the future is taken care of. It honestly makes a big difference and it is one of our biggest focus points of goal-based budgeting – working out what it is you want in your future and how to make it financially happen.
But if you haven’t started saving yet, that’s okay! The best time to start is right now. So to get you going, here are some things you should be saving money for. You can set up separate accounts, put a little towards each or work out whatever method works for you, as long as you are saving for them.
1 – Emergencies
It goes without saying (but I guess I really do have to say it) that you should have an emergency account that is specifically for emergencies. And no, the last minute tickets to the concert you’ve been dying to see do not constitute an emergency.
These are the funds you have available if your car breaks down, or if you have a medical emergency, or if you have to fly to your parent’s town because someone is unwell and you need to get there fast.
As a general rule, you should have at least $1000 in the account to startand then start building this up to cover approx 6 months worth of expenses. It’s good to start with $1000 because that will get you out of most situations and cover most copay or excess amounts on your insurances. If you have higher co-pay or higher excess then make sure you have enough in your emergency account to cover it. And no –your credit card is not your emergency account.
Many people forgo an emergency account, thinking they need to put their money towards paying off debt first, but having an emergency account is your number one priority before paying off debt.
2 – Paying Off Debt
Speaking of paying off debt, this is something you absolutely must be saving for. Now, while it doesn’t exactly fall under the ‘saving’ category, and is more of a ‘paying back money you’ve used from someone else’, there’s a reason I put it in this post.
When it comes to paying off your debt, if you are only making the minimum repayments, then you are falling behind. That is because it will be costing you a small fortune to pay only the minimum repayments – especially on your credit card.
Whether it’s $5 or $50 more, always, always pay above the minimum repayment.
Take some time to work out when you want your debts paid off by and work out how much extra you’d need to add to your payments to make it happen – you can then make this your new ‘minimum repayment’ and know that in doing so, you’re working towards reaching your financial goals.
Use this free template to keep track of your debt and create a plan to pay it off:
3 – Retirement
Here in Australia, we have mandatory Superannuation contributions (retirement, or our version of a 401(k). If you earn over a certain amount, your employer is required to pay money into your retirement account and there were even points where the government would match your contribution dollar for dollar. Because of this, saving for retirement was never something I had thought much about as I knew it was always happening.
But, not everyone has this luxury. Which is why you should always make sure you’re saving for retirement, in whatever way makes sense for you. Sometimes you might be able to save more, other times you might not be able to contribute as much.
For us, we have chosen to stick to our minimum mandatory contributions as we can’t access our Superannuation until we reach a certain age – but we want to retire before then. Therefore we need to create other ways to ensure we have wealth for our retirement.
This is a great topic to discuss with a financial advisor and work out what is right for you.
4 – Christmas/Birthdays
I always find it odd that people treat Christmas and Birthdays like they sneak up on you and surprise you. They are at the same time every single year – what happens is that people fail to plan for them.
There is absolutely no reason why you can’t start saving for Christmas on December 26th… in fact, I highly, highly recommend having a specific Christmas and Birthdays savings account because this way you’ll never have to worry about them ‘sneaking up’ on you and you won’t have to worry about going overboard and spending too much.
It’s kind of sad that we feel the need to go into debt for Christmas and Birthday presents – and putting gifts on credit cards is going into debt for them. No judgement here – I’ve done it too. But for what purpose? So my son could have the latest gadget? That’s crazy!
Now we just save for Christmas and Birthdays. We budget what we want to spend, then divide it by the number of pay cycles in a year so we know exactly how much we need to put away from each pay.
5 – Your Financial Goals
There’s no point in me saying that you should be saving for a home, or a holiday if these aren’t your financial goals. So instead, you should set your financial goal and then make sure you are saving to reach it.
We all need to have financial goals, something we are working towards and wanting to achieve. This keeps us motivated and on track, but it also gives us a scope for how we handle our money and how we want to live our financial lives.
Your financial goals matter – and chances are you have them already, you just haven’t put them in words or haven’t created a plan for how you can achieve them. You need to make sure you are saving for your financial goals so you can make them a reality.
We all have different things we should be saving money for, but these 5 things cover off what everyone should be putting money aside for, regardless of how much they earn or how much they put aside.