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Course: Financial Literacy > Unit 2
Lesson 3: Saving money- Why and how to save
- Why and how should I save money?
- Planned and unplanned expenses
- I am ready to save. What is the next step?
- Saving wisely: emergency fund
- Emergency fund
- Saving wisely
- Saving wisely: planned expenses
- Paying yourself first
- Pay yourself first
- Paying yourself first
- What are different types of savings accounts?
- What is interest and how does it work?
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Planned and unplanned expenses
Learn about preparing for planned and unplanned expenses.
Saving money can be hard, but it's one of the most important things you can do to ensure your financial stability. One of the first things you need to do when trying to save money is to understand the difference between planned and unplanned expenses.
Planned and unplanned expenses
Planned expenses are things you know are coming, like rent, a car payment, or a phone bill. Unplanned expenses, on the other hand, are things that pop up unexpectedly—think a medical bill, car repair, or last-minute gift.
Unplanned expenses can have a catastrophic impact on people's finances. For example, if your car is the only way you can get to work, and that car breaks down, you are going to have to miss work or pay for rides to and from work until the car is fixed. If there is no money in savings for this type of expense, you are going to have to borrow money and possibly put yourself in debt. Your income may suffer if you end up missing work, and your budget will now have additional expenses in it.
Medical expenses are another type of unplanned expense that can also affect the income portion of your finances. If you are ill, your ability to work will also be affected, as well as your income.
Emergency fund
While it is impossible to predict if any of these events will happen in the future, it is important to be prepared, just in case. Best way to do this is to start an emergency fund. Emergency fund is a savings account specifically set aside for unexpected expenses. The goal is to have enough money in the fund to cover costs if something unexpected comes up. Many experts recommend having at least three to six months' worth of expenses saved up in an emergency fund.
Want to join the conversation?
what if i spend my emergency fund(2 votes)
I think that if you were to spend your emergency fund, you should try to get money from organizations that may be willing to help you, or from your family and friends. You should also look back and see what you did wrong that left you with no emergency fund so that you won't have to deal with a situation similar to this again.(24 votes)
- Do you still pay taxes on an emergency fund? And if so are the rates higher or lower than a normal saving account?(4 votes)
Your emergency fund earns interest according to where you have put the funds. If you keep it under your mattress, it earns nothing. If you put into a money market fund, you might get up to 5%. In a savings account at the bank, 1%. That little bit of earnings should not affect your taxes, unless your emergency fund has several hundreds of thousands of dollars in it.
An emergency fund is not a different kind of account at the bank. It is a different kind of account in your mind.(15 votes)
when can you start an emergency fund(2 votes)- As soon as you have any income at all, you can begin to set some of it aside for emergencies. The point is NOT to wait until an emergency occurs before starting to prepare for one.(10 votes)
- No question just suggestion, I think its also important how we identify or see some terms, for example I've learned that instead of calling it emergency fund why not call it abundance fund. Emergency runs on fear, stress while calling it abundance invites being grateful which allow things to flow more at peace without bringing anxiety.(4 votes)
This is the metaphysical or spiritual part of becoming wealthy. And it is indeed important; but emergencies DO come up whether we like it or not; so no matter what you call it... the thing that's important here is to keep saving. Along the way, learn to invest frequently and in small ways; this will teach you HOW to THINK about investing and WHAT to consider to make those savings go much further.(5 votes)
- What is a reasonable amount of money to have in an emergency fund?(1 vote)
If you’re single calculate your monthly income and time it by 2. If Married with kids times 4. However, the bare minimum is 5k(6 votes)
- What is a per unit?(3 votes)
What is the differences of savings account and emergency account? Aren't they the same account? Or should they be separate from each other?(2 votes)- Whether you put both kinds of money in the same bank account or not, you should know VERY CLEARLY which is the emergency fund that should be fully funded and kept for emergencies only.(5 votes)
is an emergency fund a completely separate account? and will have to earn more money to compensate for the savings account ?(2 votes)- An emergency account can be kept wherever you want it. You can leave that money with your other savings, but just so that you won't spend it on other stuff, be very clear in your mind and understanding that what is for emergencies is NOT to be touched. For that reason alone, it might be best to keep it in a separate account. The bank or credit union with whom you typically do business will happily set this up with you.(3 votes)
- What if the amount of money you saved for an emergency fund isn't enough? For example, if I saved 250 dollars for my fund but the payment I need to make is 300 dollars.(2 votes)
- In that event, because this is an emergency, you pay the $250 and owe the rest.
So, ask yourself if the situation is, indeed, an EMERGENCY.
Then ask if the entity to which the money is due will take $250 now and $50 later.
(Note: It's not an emergency if the only penalty for not paying it in full now is that you'll owe some interest on the debt. And if your car is broken, but you could be riding the bus, that's not an emergency, either.)
So, define for yourself what is an emergency. Make sure there's something in your savings for that. If there's not anything in your savings for that, then you may have to resort to credit, but don't make that your habit.(3 votes)
What's the difference between fixed expenses and planned expenses? Both relate to being aware of the monthly expense, so why are there two different terms for a similar definition? 😅(3 votes)