How Should You Budget Your Savings?

May 14, 2015

savings accountIf you’re just beginning your career, or have additional income for the first time in your life, you may be wondering what is the best way to allocate that income toward savings. You have several options, from retirement accounts to emergency funds and more. A recent article on the Equifax Finance Blog, “Retirement Savings or Emergency Funds? How to Prioritize When Saving Money” explains the best ways to save.

The experts at Equifax recommend having three distinct savings accounts – a rainy day fund, an emergency savings and a retirement account.

Rainy Day Fund. This fund can cover any unexpected, small expenses that you have not budget for such as a paying for an emergency room visit after a child’s first broken bone or a minor car repair. The rainy day fund should be first priority, as it won’t take long to save and these are the more common expenses that you should be prepared for. A rainy day account is typically around $1,500 to $3,000 and should be readily accessible, so as located in an account that has no withdrawal fees or penalties.

Emergency Savings. This savings account should be your second priority, and it should contain enough to support you in case of a major life event, such as a layoff or major illness. A general rule of thumb for an emergency account is to have three months of your non-discretionary expenses if you are single, or six months if you have a family. Just like a rainy day fund, your emergency savings should be available from an FDIC insurance account in a pinch.

Retirement Savings. A retirement account should always be a priority, as the more you save now, the more you’ll have when you retire. The amount of income you have and the amount of you money you’re currently putting aside into the rainy day or emergency savings accounts may determine how much you can place into your retirement savings. Contribute regularly or have it automatically deducted from your paycheck if your employer offers it.

If you’re ready to begin saving for the unexpected, or for your future, read more savings tips on the Equifax Finance Blog.

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