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Everything You Need to Know About Savings - YouTube
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so once you've made your budget and
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you've figured out how you're tracking
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the money coming into your life and the
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money going out of it the next step is
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learning everything you can about
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savings how to do it why it's important
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what you should be saving for and the
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best strategies to help you reach those
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goals the biggest and most important
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thing to know about savings is that the
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sooner you get started the better off
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you are even if you don't already have
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specific goals in mind for your money
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long-term although I hope by the end of
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this series you will just starting to
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put away that money regularly will come
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in handy before you know it and will
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help you start to build those really
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good money habits where savings feels
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like something exciting to do with your
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money and watching that number go up
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feels thrilling rather than always
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feeling like savings is the least fun
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thing you can do with a little bit of
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extra cash and if you do not have any
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money in your savings yet do not panic
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because you are very much not alone
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according to a recent survey by Bank
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Rate most Americans have fewer than
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$1,000 saved and 39% of Americans have
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no savings at all so there is no time
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like the present to get started so let's
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first start things off with a quick
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overview of the savings accounts that
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everyone needs because yes in general
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you should have more than one savings
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account your first and most important is
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your emergency fund this is money that
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should be readily accessible to you in a
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savings account although I personally
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recommend making sure that you keep this
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money in a separate Bank than your
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checking account so that you can't
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easily access the money on a whim and
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while you'll hear recommendations
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everywhere from putting a thousand
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dollars in your emergency fund to up to
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a year of living expenses in your fund
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I think aiming for something around
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three months worth of minimal living
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expenses is a good goal and your
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emergency fund is the most important
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because it's exactly what it sounds like
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money that you need to have in case of
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emergency if your car breaks down if you
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need to replace your laptop if you
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unexpectedly get thick without very good
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insurance or without insurance at all if
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you unexpectedly get laid off this is
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the money that you need to access to
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make sure that you can get by while
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looking to rebuild and this means that
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an emergency fund is not
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to be used for going on vacation with
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friends or buying a purchase that's nice
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to have but not need to have if your
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money is not there specifically for an
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emergency then it completely defeats the
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purpose of having it and while there are
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tons of varying opinions about how much
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a person should have in their emergency
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fund there are some minimums that
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experts have generally agreed are
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helpful to people even at lower incomes
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to stave off most of the worst
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for example economists Emily Gallagher
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and George C bot found that for
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low-income households about $2,500 in a
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savings account would stave off most
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disasters so it works as a good minimum
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savings rule although they do stress
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that more is always better and yes the
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size of your emergency fund will grow or
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shrink depending on life circumstances
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or other priorities for example if you
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know that in a worst-case scenario you
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could move back in with your parents or
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you don't have a car that will break
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down and need expensive fixing or you
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have managed to minimize other areas in
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your life where an emergency expense
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would have a massive impact you may be
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able to have a bit less in your
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emergency savings but you should always
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calibrate it to the needs and expenses
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of your life to make sure that
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unexpected emergencies are not going to
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put you in financial ruin once you've
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gotten your emergency fund squared away
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the next most important place where
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you're going to want to focus your
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savings is on your retirement and this
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is the type of savings we're starting
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early can make the biggest possible
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difference not only because your
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retirement is generally going to be the
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longest term form of savings that you
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make but also because many of the most
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important retirement savings vehicles or
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places to keep your retirement savings
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are going to be investment accounts
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which accrue compounding interest over
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time and you may be wondering why
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shouldn't I just keep my retirement
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savings in a regular savings account
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like I would my emergency fund and
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that's because retirement accounts come
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with special tax advantages that you'll
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want to take advantage of and there are
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two types of these accounts tax deferred
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and tax exempt tax deferred means you
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don't pay taxes on the part of your
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income that you direct or contribute to
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your retirement account but you will pay
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taxes when you eventually withdraw that
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amount from the retirement account so if
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you have an income of $40,000 and put
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$2,000 into a tax deferred retirement
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you would only pay taxes on $38,000 of
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your income tax exempt on the other hand
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does not have immediate tax benefits you
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contribute to them with after-tax
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dollars but when you make the
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withdrawals you do not pay taxes on the
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growth of the account as the investment
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returns grow tax-free both types will
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save you money in the long run on those
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taxes it's just a difference of when
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that benefit is realized we'll get into
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some of the different types of specific
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retirement accounts in a later video
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when we talk about investing in general
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what's important for everyone to
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remember though no matter the specific
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types of retirement accounts you're
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going to be taking advantage of is how
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much you should really be putting toward
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retirement in an ideal world if we
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assume that most of us are going to
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retire somewhere around the age of 65
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although I know many people want to try
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and save to retire earlier than that
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experts suggest that you should be
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trying to save ten to fifteen percent of
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your overall income specifically for
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retirement and starting in your early
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20s is the best and most ideal time to
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start of course for many of us that's
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not going to be realistic but do
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remember that saving for retirement has
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to be a very big priority in your
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overall saving strategy and while you
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may only be able to contribute a tiny
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amount now do remember that money that
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will be accruing compound interest year
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after year for such a long period of
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time between college and retirement is
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going to be some of the best work your
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money can possibly do for you the next
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category of savings we have is short
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term savings this is the kind of savings
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that you'll want to keep again similarly
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to your emergency fund in an easily
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accessible high-yield savings account
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it's important that this money be in
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these savings accounts because it needs
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to be liquid or easily accessible when
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you need it if for example your
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short-term savings were put in the stock
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market you could be in a position where
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you have to take the money out at a very
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inopportune time and be hugely
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disadvantaged for doing it
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typically short-term savings are going
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to be the things happening in the next
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year or so that you want to dedicate and
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account towards so that you can be sure
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to have the money when you need it think
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about things like you're going to be
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moving soon and want to set aside
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expenses for that you have an upcoming
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trip planned
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want to potentially even buy something
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like a new car shorter term savings
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goals can vary from the very important
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to the more frivolous but the point is
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they're the types of money you're going
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to want to have easily accessible these
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are often in the savings categories for
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which people will have many different
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savings accounts so that they can easily
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put different money toward different
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things rather than having one big
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account with just a randomly generated
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account number that goes toward all of
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your small short-term savings goals you
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can have one account labeled new car one
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account labeled summer vacation one
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account labeled a big move for many
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people it makes these diverse goals a
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lot easier to reach then lastly
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somewhere between short-term savings
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goals and retirement savings goals you
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have your long term savings these are
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things that you will want to save up for
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for a while but usually long before
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retirement often something like between
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the next five and ten years for some it
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might be things like saving up a down
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payment for a house or wanting to go
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back to school to pursue a new degree as
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I mentioned for your short term savings
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you want to keep them in something like
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a high-yield savings accounts so the
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money is easily accessible but for
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longer-term savings you can use a mix of
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those high-yield savings accounts along
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with investments financial expert
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miranda marquit recommends breaking your
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investments into stocks which are more
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volatile and bonds which are less so but
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offer less potential for gains she
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recommends this mix of savings if you
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have a healthy emergency fund because
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it's a way of putting your money to work
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without much involvement on your end you
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do want to make sure however that you
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won't need the money in your investment
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accounts for at least five years
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otherwise you run the risk of losing
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money in the markets which is something
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that actually happened to her when she
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had to pull money from her investments
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after her house suffered water damage
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for longer-term savings goals that are
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even further from that five to ten year
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vantage point but still closer than
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retirement you can still use something
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like a high-yield savings account but do
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remember that you will run the risk of
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inflation outpacing the gains that you
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will receive on that account so you may
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be better off just investing that money
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you can also consider things like
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certificate of deposits or CDs but do
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remember that your money isn't freely
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accessible when put into CDs it has a
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set maturity date and you can't use your
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money until that date the farther away
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the date the higher your expected
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returns though
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as some five urine beyond CDs have
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interest rates around 2.2 percent that
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means that if you invested a thousand
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dollars in a CD by the end of five years
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you would have earned about a hundred
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and sixty dollars in interest no matter
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your goals and no matter your income you
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should always be saving something even
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if you can only afford to put ten
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dollars a month away into a savings
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account just the act of doing it will
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help create and reinforce those better
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habits and a stronger relationship with
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money those economists I mentioned
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earlier Gallagher and savate believe
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that the most important thing is the act
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of saving itself not necessarily having
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some big specific number in mind and if
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and when you do reach a specific savings
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goal it's healthy to keep saving as if
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you hadn't and as you get closer to your
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savings goals Gallagher says you feel
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more motivated to attain them it's
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called the goal gradient hypothesis and
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it's also why you might find yourself
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frequenting a coffee shop or lunch place
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with a buy nine get one free punch card
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more often the closer you get to that
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free drink or free lunch
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essentially savings becomes a bit of a
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snowball effect where the positive
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feedback that you get from reaching
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smaller goals and demonstrating that you
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can be diligent and seeing those numbers
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tick up starts to create the feeling of
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wanting to do more of it for me it's
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easily comparable to working out
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I used to absolutely hate exercising
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until I started to force myself to do it
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regularly and then I got to a place
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where the inertia of exercising actually
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made me want to do it I've had the exact
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same experience with savings and now
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it's one of my favorite things to do to
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check those numbers and see how I'm
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doing on some of my goals whether you're
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putting away for your emergency fund
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retirement long term or short term
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savings goals the point is that you be
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consistent and start early
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no matter your current situation don't
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forget to check out the next episode in
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our guide to getting good with money for
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college students and for all things
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talking about money don't forget to
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check out the financial diet here on
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YouTube or all around the internet
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