Everyone knows they should be saving money, but most people don’t take it a step further and specify what that savings should be for. I’ve worked with clients who would save money consistently, but never had a strategy around that savings. There are certain things everyone should be saving for, but it’s not always clear what those things should be.
Don’t get me wrong, saving money just to save money is better than the alternative – not saving money at all, but when you don’t have a purpose for your savings, it can be easy to spend it on things you don’t necessarily need. If you’re unsure about what you should be saving for, start with the list below. Of course, some of the items may seem far away or a little intimidating. That doesn’t mean you shouldn’t start saving for them now!
Things everyone should be saving for
#1 A home to call your own
The American Dream looks different to everyone, but more often than not, a home is in that dream. You may be young in your life, or later in your life, but having a home to call your own should be something to save for. When I say a home to call your own, I mean a mortgage-free home. A home that can always be a place to live when nothing else seems to be working out.
Of course, if your home is mortgage-free or not, you will be required to pay property taxes. That’s worth it, at least to me! If you can’t afford to purchase a home outright, start saving for your 20% down payment. Saving for your first home can be a journey in itself, but the earlier you start, the more you will have. Once you have your down payment saved, keep going. The goal will be to pay off your mortgage as quickly as possible.
#2 Your life at retirement
I can’t stress the importance of saving for retirement enough. The sad thing is that saving for retirement is not taught in school – and when you’re young, it’s even more crucial to start saving for the decades out. Worry not. If you haven’t started saving for retirement, don’t beat yourself, just start right now.
There are so many reasons to save for retirement early in life. One of those reasons is to have the freedom to not work if you don’t have to. This savings also goes hand in hand with saving for your own home. You don’t want to be forced to work in retirement because you didn’t pay your mortgage off in time. You also don’t want to rely on the government to take care of you in your retirement years – you will be greatly disappointed in what they offer.
#3 Education for your children
As most of you know, college is not cheap. If you have kids or plan on having kids, open a 529 college savings account for them. A 529 account functions like a 401k or IRA, except you’re saving for college, not retirement. You deposit money into the 529 account over the course of your child’s life, and come time for college, you will have a nice nest egg to leverage.
You won’t be able to open a 529 account until your child is actually born, but you can use an online brokerage firm like Betterment to save for it. I love that Betterment allows you to save for specific goals. This helps keep you front and center on what you’re saving for.
#4 A dream vacation
Whether you like to travel or not, a dream vacation is worth saving for. For me, a dream vacation would be a multiple-month exploration around Europe and Asia. That doesn’t sound cheap at all, does it? The earlier I save for it, the more I’ll have when it comes time to take that trip! For you, a dream vacation may just be a month off of work to renovate your home, stay local, or visit relatives.
It doesn’t matter what a dream vacation looks like, what matters is that you have the funds handy to take it when you’re ready. Saving for a vacation is extremely motivating, as well. You know that there is something at the end of all your budgeting and saving efforts.
#5 An emergency… and not a small one
Two-thirds of Americans would not be able to cover a $1,000 emergency. What about a job loss? What about a medical emergency? Something everyone should be saving for is a true emergency fund. $1,000 is a great place to start, but it is nowhere near enough what you would need if something tragic happened. 3-6 months’ worth of expenses is going to be your best bet. It may not be quick and easy for you save that amount, so start stashing money away for it right now. And, remember…no touching!
#6 A life free of debt
Whether you have a mortgage, student loans, or credit card debt, you know how heavy that can feel. Every month you have to cut a check to your lender to slowly pay down the debt. Imagine if you didn’t have to do that. Imagine how that money could stay in your checking account or be moved to savings. I’m telling you, a life free of debt is certainly worth saving for.
If you have a lot of debt, it can be difficult to know where to start when dealing with it. It all starts with a budget. Understanding what income you bring home and what expenses must be covered will help you know what you can afford to put towards your debt pay off. Think of paying off your debt similar to savings. Instead of that savings going into a savings account, it’s going towards paying your debt off.
#7 Investments, investment properties, or entrepreneurial endeavors
Let’s say your home is paid off, you’re on track to retire comfortably, and you’re debt free. Now it’s time to start saving for building wealth. Investments, investment properties to rent out or sell, and starting your own business are great ways to build wealth.
Think about what’s important to you. Maybe you don’t want your own business, but like the thought of having rental properties. Maybe you don’t want to deal with tenants, and just want to flip houses. The great thing is that you can save for whatever investment opportunity is right for you. This form of savings will yield great returns!
#8 The freedom to spend if you want or need to
How great would life be just to know you can fly across the country to see your mom, or you can take a long weekend and stay at a lake house? Having the freedom to spend (or not spend) your money how you want is an incredible accomplishment. You may be forced to spend the money, but at least you will have it to spend.
If you aren’t sure what you should be saving your money on, start with the 8 items above! Take it slow and do what you can. There’s no point in saving money if you are just going to touch it before you need to. Slow and steady wins the race. Are you currently saving for any of the items above? What else are you saving your money for? Post a reply below to share!
The CGS Team