How much should you save?
Many Americans make a resolution to save in the new year, but where do you start? An emergency fund should come first.
Here’s a quick rule of thumb: You should save enough money in an emergency fund to cover your expenses for 10 months. So, multiply your monthly expenses by 10, and that’s how much liquid cash you should have in your savings account. Keep in mind it's called an emergency fund for a reason -- that's the only time it should be used.
MainStreet highlights the six reasons why an emergency savings account can save your financial life.
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Save for Unemployment
The unemployment rate is at 9.8% and 15.1 million people are unemployed, according to the Bureau of Labor Statistics (BLS). Unfortunately, in this unstable, unpredictable economy, most jobs have become less secure, underscoring the need for money to cover your expenses if and when you become unemployed. The BLS says that almost 42% of the unemployed have been without a job for 27 weeks or longer. The only way you can afford to pay your bills is by having an emergency savings fund.
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Save for Your Health
Whether you have health insurance or not, it’s important to have savings to cover an unexpected health emergency. If you do have insurance, you’re still responsible for paying the deductible in most cases. And remember, not all medication is covered under insurance, which could really affect your finances (and health!) if you don’t have the money to pay for medication.
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Save for College
College costs are at record highs, just ask the average parent. Financial aid, scholarships and grants usually don’t cover the entire cost of tuition, not to mention there are the costs of books, room and board, insurance and more. You certainly don’t want to take out student loans, with enough savings, paying for college will be much easier. For more tips on saving for college, check out this MainStreet section.
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Save for Dream Vacations
Maybe it has always been a dream of yours to go on a hike in the Grand Canyon, or travel and see the Leaning Tower of Pisa in Italy. Savings would help make these dreams come true. However, make sure even after spending money on this vacation, you still have a savings account strong enough to cover your monthly expenses for 10 months.
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Save for Gifts
With the holiday shopping season in full swing, chances are you’ll be doing some shopping this month. There’s no reason why shopping for gifts to give to friends and family should cause you to rack up thousands of dollars of debt. This is where a substantial savings account comes in handy. Using cash, instead of credit card will prevent you from accumulating debt this holiday season.
Scott Gamm is the founder of HelpSaveMyDollars.com. He has appeared on NBC’s Today, MSNBC, Fox Business, Fox News, ABC News and CBS.
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