Concept of Savings:

To fully comprehend the concept of savings, it is essential to understand that savings refer to the portion of one’s disposable income that remains after deducting all consumer expenses over a specified period. This surplus represents a net positive balance, allowing individuals or households to accumulate reserves after all financial obligations, including essentials such as housing, utilities, and insurance, have been met. However, the challenge lies in saving amidst various necessary expenditures that often consume much of one’s income, leaving little room for accumulation.

Professionals provide varying perspectives on how much one should save, with a common recommendation being to maintain a reserve equivalent to three to six months' worth of household expenses. Unfortunately, many households in the U.S. fall short of this goal, with approximately 42% having less than $1,000 in savings, and 10% having none at all, according to Investopedia. The purpose of such savings is often to serve as a financial cushion in the event of job loss, where a household might need several months, or even up to a year, to secure new employment. During this period, a properly allocated savings fund ensures the household can meet its essential needs without succumbing to financial strain. USA Today highlights that an average household should ideally have $33,110.68 set aside for emergencies, a figure that starkly contrasts the actual average savings of $8,329 held by most families—a notable gap that underscores the pressing need for better financial preparedness.

Many experts also advocate for the widely known 50/30/20 rule, which provides a clear framework for managing income. Under this guideline, 50% of one's income should be reserved for non-negotiable necessities such as rent or mortgage payments, groceries, and insurance. The next 30% can be allocated toward discretionary spending—categories like entertainment, dining, and other non-essential items. The remaining 20% should be directed towards savings, forming the foundation of a robust financial safety net. 

Here are some savings accounts you can utilize:

1. High Yield Savings Account 

1. Sofi
2. Wealthfront 
3. Western Alliance Bank

2. Money Market Account 

1. Zynlo
2. Vio
3. Quontic

3. Bonds - Get in touch with your financial advisor for recommendations 

4. Regular savings account from an FDIC insured bank 

Once the initial savings structure is in place, attention should shift to building an emergency fund. Financial experts recommend starting with a minimum of $1,000 to cover unexpected expenses, such as vehicle repairs, medical emergencies, or urgent home maintenance. Alternatively, another sound strategy involves saving at least half a month’s worth of living expenses. For example, if a monthly household costs a total $5,000, setting aside $2,500 as an emergency fund offers valuable protection against unforeseen financial shocks. The key, however, is to exercise discipline and restrict the use of these funds solely to true emergencies.

‍

Automate Savings:

After establishing a solid savings foundation, the focus must shift toward automating the savings process. A straightforward approach involves setting aside a designated portion of each paycheck in a separate savings account, distinct from the operating account used for daily expenses. This method ensures that savings grow consistently without the temptation to dip into them. For those without formal accounts, a similar practice can be achieved by physically setting aside cash in an envelope, adhering to the same principle of untouched reserves.

Simultaneously, it is imperative to address outstanding debts, prioritizing repayment by targeting the smallest debts first before moving on to larger obligations. Once debts are under control, individuals should turn their focus to retirement planning by contributing to their employer’s 401k plan, particularly if matching contributions are available. Maximizing these contributions represents a rare opportunity for “free money” that can significantly accelerate long-term savings growth.

Incorporating these disciplined financial strategies—ranging from emergency savings to debt repayment and retirement contributions—paves the way for lasting financial stability. By ensuring autonomy in your savings and leveraging available retirement benefits, you are laying the groundwork for a prosperous and secure future.

‍