Money Management Tips: Set Your Savings Priorities
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In the first part of the Money Management Tips Series we discussed the importance of paying yourself first. Once you’ve got an automatic savings system in place (it’s easier than you think!), it’s time to start focusing on your priorities. Where and how are you saving? What and when are you saving for? You can unearth the answers quite easily. Just think ‘pyramid.’
Build Your Healthy Savings Pyramid
For a good model on savings, take a look at the Food Pyramid. It gives a clear visual guide of the types and amounts of food your body needs to achieve nutritional health. To help keep you with money management and to keep you fiscally fit, build your own Healthy Savings Pyramid to guide you.
At the base of your pyramid is your long-term savings. The money you invest here will help build a solid base of savings for your long-term goals. Mutual funds can work well for this.
The next level up is where your mid-term savings are. This is the big-ticket fund you plan to spend within about five years. It might be five years’ worth of living expenses if you are already retired, a college fund if you have older kids, or a house down payment. This is also where you stash money earmarked for the new roof, new car, or even a major vacation. CDs or short-term bonds can be used for these predictable expenses.
At the top of your pyramid is your short-term savings. These are liquid funds you might need for medical emergencies, car-repair emergencies, a sudden loss of your job. This money needs to be readily available — but not too readily available (or you might use it for something like a vacation or plasma TV). A separate savings account or short-term money market account would be a good option here.
How you fund your savings pyramid depends on a number of factors, but keep in mind that the pyramid only works if you have a plan for all three sections.
How much should you save? Ask yourself these 3 questions:
Another key factor in money management and prioritizing your savings stems from keeping aware of the present investment market. Stay up to speed on the best interest rates at the Equifax Banking and Loans Center. This information may influence your decision as to how to manage your money and use the savings pyramid to save the most money.
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