Allocating your Savings 101
Everyone needs money in the bank for a rainy day. You never know when a family member may fall suddenly ill, your car might break down, or you lose your job. The moment you must cover a large expense you definitely don’t want to be in a position where you have to leverage credit or borrow from someone else.
With that in mind it is best to allocate your savings into different buckets. So how do you achieve this? Your first bucket should be a savings account worth 3 to 6 months of expenses. If you’re just starting out, building to a $1,000 emergency fund is a great start. Ideally it should be able to cover the below and it can be used for an emergency as well.
- Rent/Mortgage
- Monthly utility bills
- Necessities i.e Phone Bill and food
You can then set up a second bucket and account for your day to day expenses and set a monthly cap based on your spending habits. You can review your spending habits by using tools like Personal Capital or Mint. Lastly you can set up additional accounts for specific spending goals like a vacation or wedding for example.
Once you get these basics of allocating your money down you can then evolve to additional accounts and opportunities like investments accounts but more on that later. Are there any other savings buckets you recommend starting? Leave your thoughts in the comments below!
