First, assess what your needs you might have for the upcoming year. For Jason and I, we have three savings accounts: un/underemployment, 8-month emergency fund and a new-to-us car. During the summer, we shared what our 2012 budget will look like. At that time, Jason and I were planning to put all of our savings into the new-to-us car savings account. However, our priorities and thoughts have shifted somewhat, as we realized we didn't really want to buy a new-to-us car until our primary car really officially died (our primary car is 13 years old and still runs very well).
Here's why we chose these accounts and how money will accrue in each account:
Our no. 1 priority savings account is un/underemployment. Since Jason's income fluctuates monthly, it's sometimes difficult to plan a budget. Going into 2012, we decided on an amount that we could safely count on each month from all of Jason's various sources of income. Let's say that amount is $1. Our goal, then, is to save $1 (a full month of what we can consider normal income). Then, in months where Jason may make less than that through all his various sources of income, we will pull money from this account so our lifestyle is stable and secure. As we use the account, in months where Jason makes more than $1, we will put the extra income in this account. When the account reaches double what Jason makes in a month (in this example, $2), we will move $1 into another savings account.
Our no. 2 priority savings account is our 8-month emergency fund. This is an account that we will only use in dire emergencies: the house burns down and we have to pay the deductible on renter's insurance, death to one of us, Preston breaks his leg and needs surgery, etc. etc. We plan to save 10% of all our income to reach our goal. We won't reach the end goal this year, but we're hoping to reach this goal within the next few years. We're also aware that once we buy a house/condo/place-that-is-definitely-ours, we will need to beef this account up even more since our monthly expenditures will change.
Our no. 3 priority savings account is the car account. This car account is created to serve two purposes:
- To eventually buy a new-to-us car
- To have money on hand for major car repairs
When considering your own savings plan, it's important to establish the following:
- Order of importance: which account is most needed? For some, that may be an account to get a new car, and for others, it may be a retirement account. Anticipate your needs for the year in order of what needs will arise first or what needs are most important to you.
- Amount for each account: how much do you want to save for a car? do you want to max out your ROTH IRA for the year? Determine the amount you want to save. It's okay if you can't met the goal this year; the point is to accrue money and save.
- How to save money: where will you get the money to save in the account? do you want to take a set amount from each paycheck? can you take on a second job to earn the money? do you have services you can put to use to earn the money on the side? Determine where you can raise the money to put something in each account. Again, how much you can put away is not really of importance; the important thing is that you're trying to save and you're putting forth a solid effort.
- What the account can be used for: can you use a car savings account to pay for a new blender? does a medical account include paying for items like glasses or Band-Aids? Determine what each account can and cannot be used for, so you and your family are on the same page. It's important to set boundaries ahead of time so when an emergency (or as the case may be, a non-emergency) arises, everyone is firm on where money can come from to handle the new need/want.
Share with us: What are your 2012 savings goals?