In this post, we will touch on the topic of personal savings, why is it important, who does it apply to, when to start, what is the right amount, where to save, and how to save.
WHY is it important?
I believe all of us can agree why saving is important. Without savings, we can’t buy things that we need or want. Much less talk about insurance, investing and pursuing things that we are interested in. It also serves as a “Rainy-Day Fund” for unexpected loss of income, like accidents, Covid-19, job loss, etc.
WHO does it apply to?
Everyone. Being prudent with our hard earned money is really important. Think of it this way, when we work, we are practically trading a portion of our time away in return for money. When we see it in terms of time instead of purely money, we will be more prudent in the way we handle our finances.
WHEN to start?
Now. The best time to start on something good was yesterday, the next best time is today. It’s never too late to begin a good habit of saving! I wasn’t born a good saver, I had to go through life to learn that. I used to spend money without giving too much thought and there wasn’t really any savings in my bank account.
WHAT is the right amount?
The generic recommendation out there is to have at least 6 – 12 months worth of your expenses saved up. I prefer to be more conservative and aim for 6 – 12 months worth of my net monthly income.
WHERE to save?
I typically keep my emergency funds in a high savings account instead of the typical savings account we got when we were much younger as their interest rates are low (0.05%) and we wouldn’t want to let inflation eat away at our money. There are a variety of high savings account out there and I will probably do a post on them in the near future!
HOW to save?
There’s lots of recommendations out there on the internet (a lot of good blogs/websites on finance!) in terms of the allocation of monthly salary. There’s no perfect allocation as what works for one person might not be applicable to another’s current finance situation. What I can share is what I do with my net monthly income:
I set aside the entire 50% of savings for investing (we will touch on this in another post) as I have recently hit my target emergency fund amount. The remaining 50% consists of bills, giving money to parents/family, insurance, and even my daily general spending. Do note this is all approximate, most of the time I hit the allocation as stated, but sometimes, I fall short by a little, sometimes I save more. The main point is just to ensure we do our best to stick to our desired allocation and start saving!
I hope this post isn’t too long and that the information provided was informative, beneficial or even maybe a good refresher for those of us who have already begun our journey in personal finance.