3 Important Savings Goals to Include in Your Budget Plan
Posted by : Raj | Posted on : Tuesday, November 1, 2011
DELICIOUS
SU
REDDITBy Michelle Studer
When it comes to creating a budget, it’s common knowledge that you’ll need to track your money and where it goes. However, the most effective budget plans consist of more than just expense tracking; they also incorporate long-term savings goals. For the most part, these will be unique to each individual budget and lifestyle, but there are also some general goals that everyone should include. Here are 3 of the must-haves:
Goal #1: Eliminate Toxic Debt to Build Up Your Savings
Some expenses are inevitable, while others are simply a waste of money. The poster child for this second category is toxic debt. According to MSN Money columnist Liz Pulliam Weston, debt is considered to be “toxic” if it meets the following criteria:
– The lender can change rates and terms at any time, with little or no provocation.
– The standard or default interest rate is in the double digits, or higher, which typically prolongs the time you remain in debt.
– Initially easy payment terms encourage you to rack up more debt than you can comfortably repay.
Toxic debt hinders your financial growth by sticking you with sky-high rates and nit-picky fees. Examples of this are payday loans, credit card debt and car title loans. If any of these debts are part of your current expenses, set aside as much as possible to pay them off ASAP. By doing so, you’ll eliminate unnecessary fees and interest rate payments and can use the money you save to further your long-term financial goals.
Goal #2: Put 10-20% of Annual Income in Retirement Savings
As a future retiree, your golden years won’t be anything if you’re forced to rely on Social Security or a pension for your income. In order to afford your current standard of living as an old timer, financial experts recommend putting at least 10% of your annual income in a retirement account if you begin saving in your 20s or 30s. If you wait until your 40s to save for retirement, plan to set aside at least 20% of your annual income. Keep in mind that these percentages are only the minimum of what you should be saving, so put away even more if you can afford to.
Not only will you be better off the more you save, but the sooner you start the more you’ll end up having. This is due to the magic of compound interest, which turns time into your biggest ally for increasing your earnings. For example:
– Investor A deposits $200 every month in an account averaging 8% in interest earnings. He makes these monthly deposits for 35 years, depositing a total of $84,000 in his account.
Investor A’s account total (35 years, 8% average return, $84,000 in total deposits): $462,000
Investor B also deposits $200 each month in an account averaging 8% in returns.
He does this for 40 years, a total of $96,000 in account deposits.
Investor B’s account total (40 years, 8% average return, $96,000 in total deposits): $703,000
After 5 additional years and $12,000 more, Investor B’s account total is $241,000 more than Investor A’s – a windfall well worth the price of admission.
Goal #3: Establish an Emergency Fund
Today’s poor job market makes it more important than ever to save for a rainy day. Along with your retirement account, an emergency fund is another fundamental savings goal. Establishing an emergency fund will help you to weather the unexpected layoff, medical emergency, or other financially draining catastrophe. Experts recommend putting a minimum of 3 to 6 months worth of living expenses in your emergency fund. Due to the current recession, however, 8 months to 1 year is a better goal to strive for.
Thanks for the sound financial advice. Toxic debt just eats away at your chances to become financially secure.
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Definitely great advice, I’m terrible with finances and this is just what I was looking for!
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Thank you Premraj for the wonderful financial advise. I think you have explained in detail the three most important saving goals.
I think the most important is Establish an Emergency Fund! Emergencies happen. A roof needs replacing. People are injured in accidents. Employers lay off workers. If something unexpected happens to you, will you have the money you need to pay the repair bills or see you through weeks or even months of being out of work?
Not possible to make direct investment in gold. So every parson his annual income to make some percentage to investment in a gold because some year after to our investment to good return it.
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Great site I really enjoyed reading the information that you have provided.its good to know the I know have opportunity to get out of debt.
It’s a good thing to plan ahead so that we can better in the future. I love this knowladge
You are absolutely right: reduce toxic debt and try to save for your retirement. I believe that using a budget spreadsheet and actually maintaining it every month can do wonders by achieving those goals. Thanks for sharing!
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“3 Important Savings Goals to Include in Your Budget Plan | BudgetPulse Blog
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Thanks -Brianne
Thanks for sharing! I have been looking for budgeting tips, because I got into some debt and I ended up getting a cash out annuity to help. I am now trying to learn easier ways of balancing my budget without falling into debt!
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