Why do you save?
Maybe it's the dream of owning a home by a lake. Or maybe you are wanting to be in a healthier financial position with an emergency fund. Or maybe, you are saving for multiple goals!
Whether you are a seasoned saver or just beginning your journey of putting away money for “future you”, creating buckets of funds dedicated to specific goals can be a helpful way to prioritize and create motivation to save even more.
Here are a few of the important savings “buckets” people find most useful:
1. Create an Emergency Fund
Setting money aside for emergencies can help us cope with unexpected circumstances. It can help cover expenses due to job loss, medical emergencies, or urgent home repairs.
Experts suggest 3-6 months’ worth of essential expenses be saved in this fund. These savings can act as a safety net in case an emergency does occur and you quickly need funds.
2. Consider a Rainy-Day Fund
While emergency funds are primarily used to help with major crises, a rainy-day fund is designed to handle smaller, unexpected expenses. It serves as a buffer for those minor financial surprises, such as car repairs or appliance replacements.
Target saving somewhere between a few hundred to a couple thousand dollars, depending on your lifestyle and comfort level.
3. Making Plans? Build a Sinking Fund
A sinking fund is an approach to budgeting where every month you set aside money toward a planned expense or specific goal such as a down payment on a car or a home renovation.
How much money should go into your sinking fund? Calculate the amount you need for your specific goal, divide the total by the number of months you must save, and begin making consistent contributions every month to meet your goal.
4. A Vacation Fund Can Help Pay for a Memorable Getaway
Access to a dedicated vacation fund can help you travel without worrying about the impact on your normal monthly expenses.
You can make regular contributions to this fund so that there’s always money on hand when you get the itch to travel. Or, you can set a goal in advance and set it up like a sinking fund with a specific amount in mind.
5. Feeling Indulgent? Start a Splurge Fund
A splurge fund allows you to treat yourself to some occasional luxuries without the guilt of spending money that’s better spent elsewhere.
Allocating a small percentage of your income to a splurge fund can help provide the freedom to be a little spontaneous without upsetting your financial plans.
6. We all have medical expenses. A Medical Savings Account can Help
Medical expenses can be financially crippling — even if you have the best health insurance available. Creating a medical savings account may help you proactively manage these expenses.
Look into Health Savings Accounts (HSAs) or Flexible Spending Accounts (FSAs) and see if they are available through your employer. By establishing a medical savings account, you will be better prepared to handle unexpected healthcare costs.
7. Looking to the Future? Consider Long-term Savings Funds
It's important to allocate funds toward long-term financial goals, such as retirement or college.
Individual Retirement Accounts (IRAs) and 401(k)s, are specifically designed to help you save for retirement. College savings accounts, like 529 plans, allow you to save for your children’s educational expenses. These accounts may provide tax benefits and help you prepare for the rising costs of higher education and retirement.
Approaching your savings strategy with organized goals and priorities helps you determine how best to allocate the resources available. Knowing where you want to go and making a plan to get there is a process that evolves over time. But taking the first step puts you one step closer to your goals.
Connecting with Canopy’s financial coaches can be a great place to start when considering short-term or long-term savings goals. Log on to canopycu.com/coach to make an appointment today!