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How to Structure Savings, Wants, and Needs

Congratulations on making the decision to get serious about saving. Saving a little is more than saving nothing, but let’s take it a step further. Using a guideline to help you establish your goals will not only help you save, but also help you pay yourself and make sure your financial responsibilities are in order.   

The guideline:

• 50% of your after-tax income goes to needs
• 20% goes to savings and debt repayment
• 30% is for wants

The breakdown:

Needs are those expenses you must pay: housing, food, utilities, transportation costs, and insurance.
Savings comes from money left after you take care of wants and needs. It’s what you set aside for the future.
Wants are flexible expenses: cable tv, restaurant meals, concert tickets, crafts and hobbies, and clothing beyond the basics.

How to put this into action:

It may sound backwards, but it’s a good practice to actually pay yourself first. By doing so, you are less likely to feel you’re sacrificing all fun to save. When your money is in balance, you always have enough to pay your bills, have some fun, and save for your goals. 

If you’re starting from zero, be realistic and don’t expect to hit 20% savings with your next paycheck. Work to make progress toward that goal and be consistent. You are striving for a money plan that is sustainable:

Think of your savings in short-term, medium-term, and long-term goals. In the near future, you might be planning a family vacation. Within the next few years, you might want to establish a solid emergency fund equal to three to eight months’ living expenses. Long-term, you want to secure your retirement or perhaps help a child with college expenses.
If your company offers a 401(k) plan, max out your contributions, or at least meet the company match. Since you make this contribution before taxes are deducted, you won’t be giving up so much of your take-home pay. Work towards putting half of the 20% savings slice toward your retirement.
Exploit opportunities to find more money to put toward your goals. When you get a raise or a bonus, a tax refund, you pay off a debt, or you have a garage sale, remember to put a good part of that towards your savings.

This is a good starting point when deciding how much to save. Once your money is in balance, you can stop worrying about it. Managing your money becomes automatic and you are able to save, have fun, and maintain your financial responsibilities with ease. 

Source: CUNA