Equifax

Finance Blog

Money Management Tips: Set Your Savings Priorities

Written by Equifax Experts on October 14, 2011 in Credit  |   No comments

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…

money management savings pyramidIn 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:

  1. How much of a risk taker are you? You may be a bit more daring and willing to plan three years’ worth of major expenses. Or, do you like to play it safe, and want seven years’ worth? Determine your comfort level, play out all kinds of life scenarios and see where you stand as a risk taker.
  2. What are your present living expenses? A great way to answer this question is to track everything you spend in one month – from your mortgage payment to your newspaper. You can use this number as a basis for many things, including your short- and mid-term pyramid levels. Many experts advise that you always have 3 to 6 months of living expenses set aside for emergencies.
  3. What are your future living expenses? Is college tuition going to become a real thing soon? Have you booked but not yet completely paid for a family vacation? Think about anything and everything that is upcoming in your financial life and factor that into the 3 to 6 month rule stated above.

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.

READ MORE:
Pay Off Debt and Take Advantage of Low Interest Rates
Identity Theft: What To Do If Your Wallet Is Lost Or Stolen
4 Tips for Savvy Yard Sale Shopping
Need Extra Cash? Host a Yard Sale
Lost Your Job? Here’s How to Manage Your Money and Protect Your Credit Score

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Credit Archive

Stay Informed Sign up for our FREE Equifax email Newsletter