Financial Fitness

Lots of folks want to know how much they should be putting aside every month in savings.  The answer to this question is actually not as simple as you might think.

First, you should never save just for the sake of saving.  Every savings account should have a specific purpose behind it.  You may want to save for specific things like new furniture or a vacation, and you should also save for the standard stuff -- retirement and emergencies.  It's easiest to think of it in 3 categories:

Short-Term Savings (Sink Funds), generally one year or less: These smaller accounts might just be on paper, with the money staying in your checking account.  Some examples of sink funds would be annual memberships to things like Costco or AAA, Christmas or other holidays, vacations, and things like tires for your car.  If you sit down and add it up there are quite a few things that could go in this category!

Medium-Term Savings, generally around 5 years: The main thing in this category is an emergency fund.  Nearly everyone will have a major financial event happen to them in the next 5-10 years.  You can be surprised or you can be prepared.  In general this category should contain 3-6 months of living expenses for your family.

Retirement and College Savings, generally greater than 5 years: These are the "big ones" and there is no set amount to save for these categories.  The bottom line is that you need to figure out how much you will need for these expenses and work backward to calculate how much you need to save each month to make it happen.

When you add it up, there are a lot of things you need to save for in order to avoid nasty surprises and set yourself up to win with money.