It's important to have an emergency fund set aside to cover unexpected expenses. According to a Bankrate survey, almost two-thirds of American adults said they couldn't cover 6 months' worth of expenses with their savings. In fact, 40 percent of Americans don't even have an extra $400 available for emergencies, according to CNN Money.
This could be an unexpected car repair, your emergency appendectomy or a sudden job loss. If the economy starts to slow down and your job is at risk, you'll be thankful if you've socked away a good amount of money into your emergency fund to tide you over until you find a new job.
Ideally, your emergency fund should be about three to six months of your expenses. The Bureau of Labor and Statistics estimates average household monthly spending at about $4,776, which means an emergency fund for six months should hold about $28,650.
If you are just starting out, try to put aside at least $1,000.00 to start. If you are working to get out of debt, save what you can to bring your emergency fund up to between six to 12 months' worth of your income. If you are single or living on just one income, you may want to go with a larger emergency fund.
Another reason to increase your emergency fund is the continuing rise in medical costs. Even if you have insurance or Medicare, you might find yourself with a health condition or medication requirements that isn't fully covered by insurance. In addition to your emergency fund, make sure you have a plan and good insurance in place to help you financially survive unexpected events in your life.
Another important reason to save money is your retirement. The sooner you start saving for retirement, the less you will have to save in the future. You can put your money to work for you, especially if you take advantage of the magic of compounding interest.
For example, if you opened an account with $1, deposited $100 every month for 10 years, and earned a 6.5 percent interest rate or return, you'd have $16,842. Keep it up for another 10 years (20 total) and you'll more than double your money to $49,045. After 30 years of just $100 each month saved, you'd have $110,624 (including compounded interest) from your $36,000 investment.
As you continue to contribute over time you will be earning more interest on the money you have, than you put in each month.
You should at least be contributing up to your employer's match and eventually, you should contribute 10 to 15 percent of your gross income. You can contribute to your 401(k) as well as an IRA.
Save money for a down payment on a house. Your negotiating power goes a lot farther when you have a significant down payment towards your home. You will receive better interest rates, and be able to afford a bigger home.
Don't worry if you don't think you can save enough for a 20-percent down payment. Certain government-backed programs offer down payments as low as 3 percent or no down payment at all, and the national average, according to The Lender's Network, is 6 percent.
You can determine how much you save towards this each month depending on your circumstances. Saving for a bigger down payment will help you move into a better neighborhood and make it easier to buy your dream home. It also reduces the amount of your mortgage, making your payments more affordable.
When interest rates go up, put your money into savings vehicles that pay the highest rates, whether you use Certificates of Deposit (CDs), a high-yield savings account, or another investment that pays a high enough rate to offset inflation.
On the flip side, when interest rates rise, your credit card rates will also go up. In this case, it makes sense to fatten up your savings account before interest rates go up so that you can pay cash for expenses instead of relying on more expensive credit.
Save money to have fun as you don't want to be paying off your trip to Europe in five years. Even if you save up for your vacation, try to save on your vacation expenses. This is saving for the fun things, and it is often easier to motivate yourself to save this way.
You can also purchase your next new car with cash. You will be amazed at how much money you can free up in your budget if you do not always have a car payment.
You can also negotiate the price of the car much lower if you are willing to pay cash at the dealership. Living without a car payment can make a huge difference in your monthly budget, and you can save a lot of money for your other goals once you start paying for your cars in cash.
Set up a sinking fund, which is money you set aside for future, known expenses such as yearly taxes you owe, repairs on your car, or improvements on your home or other possessions.
This extra saving can help prevent you from needing to dip into your emergency fund. You can set your sinking fund based on the expected cost of items like a kitchen remodel or the average of an unexpected cost like car repairs.
Begin saving money for your future education. Each year more people return to school to earn their masters or doctorate degrees. And that comes with a hefty price tag. As of 2017, public colleges had an average cost of about $9,410 for in-state tuition and $$23,893 for out-of-state tuition. Private colleges cost $32,405 on average, and the cost of both public and private education continues to rise by about 6 percent each year.
You may also consider saving for your child's education when the time comes. If you are saving for your child's education, you should look into using a 529 plan.
There are different options and incentives available based on the state that you are living in. If you are interested in going back to school for yourself, think about saving for more than just tuition. If you will go back full time, you may also want to save up to cover your living expenses.
Top 7 Reasons to Save Your Money
You may have asked yourself why the financial media and financial planners always apply pressure to save money. If you have enough to pay for everything you need, why should you worry about putting anything aside each month?
There are a variety of reasons to begin or continue saving money. Different people save for different reasons, but it makes saving easier if you have a clear goal or purpose for the money you are saving.
Here are seven reasons that may open your eyes to new or additional reasons to consider increasing your savings account balance.