You don’t have a single dollar sitting inside of a savings account right now. All of your liquid funds are sitting in your checking account. This is something you should change.
You’ll want to direct your energy toward building up your savings. These are three savings funds that you should start with.
1. Emergency Fund
Living without an emergency fund is risky. Without that safety net, you might not have enough money to cover an urgent, unanticipated expense that comes your way. Your car could break down, and you might not have enough to pay a car mechanic to fix it. Your kitchen sink could clog, and you might not have enough to pay a plumber to clear it. Your dog could get mysteriously ill, and you might not be able to handle the emergency vet bill.
Without any savings, you’ll have to turn to an alternative payment method in an emergency. You could charge the expense to your credit card or you could try to apply for small personal loans online as a solution. As long as you meet the qualifications for the small personal loan, you could fill out an application in a short amount of time — it could take you around five minutes to do! If your application gets approved, you could use the loan to pay off the emergency expense quickly. Then you could follow the loan’s steady repayment process.
How do you start an emergency fund? Check your budget to see how much you can afford to contribute toward emergency savings. Transfer that amount into a dedicated savings account every month. Over time, this will grow into a considerable emergency fund.
2. Retirement Fund
You don’t have a retirement fund set up through your workplace. You weren’t given the option for a pension plan or a 401(k), so you haven’t bothered to set up your own retirement fund just yet. That’s a problem that you need to fix — and you need to fix it fast.
You don’t want to brush aside a retirement fund until it’s too late. You could end up reaching your golden years with a meager amount of savings to rely on. It’s better to start your retirement savings now so that you’ll have a comfortable nest egg waiting for you once you make your way out of the workforce.
So, how do you start your retirement savings fund? The easiest way to start is to open up a traditional individual retirement account (IRA). This tax-advantaged account will let you set aside a chunk of savings every single year. The current annual contribution limit is $6500 — it’s $7500 if you’re 50 or older. An IRA will have investments that will help these contributions grow tax-deferred over time. This should help you build up your nest egg.
3. College Savings Fund
Are you a parent? If the answer to that is “yes,” then you should be starting a separate college savings fund for every child you have. It doesn’t matter whether your children are still young enough to be in preschool. The younger that you start this type of fund, the better.
The cost of going to college is very expensive. For the year 2022-2023, the average annual tuition for a public four-year in-state college was $23,250. For a public four-year college out of state, it was $40,550 per year. And for a private non-profit four-year college, it cost an average of $52,430 per year. Considering how tuition costs go up every year, you can expect your children’s college expenses to be higher than the 2022-2023 tuition numbers.
So, how can you start a college savings fund? One of your best options is to open up a 529 education savings plan. A 529 education savings plan is a tax-advantaged savings plan designed for future educational expenses. These are some of the college expenses it can be used for:
- Tuition
- Dorm rooms
- Meal plans
- Textbooks
- School supplies
These are three savings funds that are missing from your financial portfolio right now. Get started on them!