Not everyone is taught about managing money in school, but it’s one of the most important things to master as an adult.
One of the pillars of personal finance is saving money.
Here, we answer six common questions about saving money, like when you should start saving money and how much.
When it comes to saving money, there is no better time to start than right now. Depending on your income and job security and your long-term financial goals, how much you save and where you put your savings will vary.
The thought of the future and retirement can be daunting when you’re just starting out in the professional world. It is important to realize that your future income isn’t secure, and saving as much as you can as early as you can is the best way to protect yourself from unforeseeable circumstances — as well as foreseeable ones, like retirement.
We asked Peter Faust, a financial planner with Tanglewood Total Wealth Management, to help answer some of the most common questions about saving money.
When should I start saving money?
Short answer: Now.
Even if it’s $20 a month, it’s good practice to start putting away a percentage of your earnings now rather than later. If you’re not sure what you should be saving for, start with an emergency fund. If an emergency happens, you’ll need something to help you pay for it. “Putting it on a credit card is not always the wisest decision,” Faust said.
Depending on your card limit and possible existing debt, only having a credit card to pay off an emergency isn’t the safest bet — especially because emergencies don’t have spending limits.
How much do I have to save?
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Short answer: As much as you can.
At least 10% of your income, if you can afford it, is a good place to start. For an emergency fund, that translates to saving at least three months of expenses.
To successfully save money, your best bet is to create a budget or track your spending. If you’re just starting out, don’t stress over your first month’s budget. The amount you spent may feel overwhelming, but looking at your past purchases will help you see where you can cut back.
What kind of savings account do I need?
Short answer: A regular savings account is best for emergency savings.
If you don’t have a savings account, the best time to start one is right now. When starting a savings account, make sure it is insured and certified by the FDIC. If you’re looking to create an emergency fund, Faust suggests a “plain old vanilla savings account,” meaning one that earns you interest and does not have fees or minimum balances.
If you’re saving for a big purchase or expense — like a house or a wedding — you may consider a high-yield savings account. It offers higher interest rates than a regular savings account but can have different requirements and restrictions, like minimum balances and deposit amounts.
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