Knowing what you earn and having a solid budget are two necessary steps in managing your money. If you have both of these in place, you’ll want to set up plans to save for expenses you need to cover in the short term, long term, and in the event of an emergency. Having an actionable savings plan allows you to maximize your money and reach your investment goals.
Short-term goals. It’s essential to save money to pay for necessary and discretionary expenses. These could be things like travel, purchases, hobbies. Be sure to factor in the funds you would need to pay for these shorter-term goals and adjust your budget accordingly.
Identify long-term goals. These should include what your goals are complete with a dollar amount and a deadline. Make a tangible list of any financial goals such as saving for a home, paying for college, and dreams you have for retirement. Then, determine how much you’ll need to have on hand and when you’ll need it.
Create an emergency fund. A critical way to prevent accumulating debt is to create an emergency fund. An emergency fund is a savings account that you can draw from when an unexpected expense arises. A financially literate saver knows how much to set aside (ideally, three to six months’ worth of expenses) and when to add more as certain life events come up.
Plan for retirement. No matter how far away your retirement feels, it’s closer than you think. When developing savings goals, retirement planning should be concurrent with any other goals you have set. Being financially literate in this topic means you’ll be able to know what you’ll need to retire and the investment vehicles you can use to get there.
Balancing long- and short-term expenses without upsetting your budget is a crucial part of financial literacy. Ultimately, planning for expenses is a simple exercise that takes some time and forethought. Find the time in your schedule to think ahead to what’s on the horizon. If you find you need a second opinion, please schedule some time with our office to talk it through. We’re here to help!