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Comfort level. To sleep peacefully at night, some people just need more money in their emergency fund. For some, three months of expenses is okay. Others achieve a greater sense of security by overfunding their emergency account by a couple of months. Lifestyle changes. As you build wealth, you will periodically upgrade your lifestyle . You’ll move to a nicer home or drive a more expensive car, for example. Over time, your monthly expenses will be higher. Add to your emergency fund as your monthly expenses increase. Reflect on Learning: If you had to determine your emergency fund expenses, what would you include? Based on current household expenses, how much would you need in a 3-6 month emergency fund? III. Saving vs. Investing So now you know: Financial Goal #1 is an emergency fund of 3-6 months of living expenses. Once you’ve accomplished that, what’s next? Set Real Life Financial Goals. Once you’ve got your 3-6 months emergency fund stashed away, the fun begins. Sit down and ask yourself, what financial goals do I have for my life? Early retirement? A down payment for a house? Money to start my own business? A nice vacation every year? Having a certain net worth? Try to identify specific, real life goals because having actual, measurable financial goals provides incentive to save and invest , which increases your likelihood of success. Experts advise to write down your financial goals, PRODUCT PREVIEW calendar your goal time lines, and track your progress toward achieving them. Set Time Lines and Priorities. You will have multiple financial goals, with varying timelines and varying priorities. Separate financial goals into two categories: short term goals which you would like to achieve in 1–5 years or are under $5000, and long term goals which are over five years or over $5000. Short term goals might be something like saving enough money for a trip with friends, a down payment on a car, deluxe flat screen, season tickets, holiday gift account, etc. Long term goals are retirement, homeownership, a vacation home, college tuition for your kids, or starting a business. Many people set a goal of having a specific net worth by a certain age , such as $500,000 by the time they are 35. Save First, Invest Next. For most short term goals, a savings account is adequate. Long term financial goals are better achieved through investing . While investing is riskier than a savings account, it has the potential to grow your money much faster. We’ll explore investing in a later chapter, but be aware that for long term financial goals, there are ways to make your money work much harder for you than a savings account. Reflect on Learning: To turn a “dream” into an achievable goal you must clarify it, provide details, and make a plan including action steps to reach it. Do you have financial dreams? What are they? Start clarifying and detailing them. Make a strategy including a timeline and action steps for turning your financial dreams into reachable financial goals. Ewwwww! Paper money can reportedly carry more germs than a household toilet. Source: Southern Medical Journal Fin Lit Trivia Fin Lit Trivia Fin Lit Trivia
Chapter 8 | Super-Size Your Savings 138
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