Developing a Personal Savings Plan
(includes calculator)

There are many reasons why everyone should develop and stick to a savings plan. Unfortunately, survey data suggests that most of us do not have what most experts would consider an adequate level of savings, and no plans for building such an emergency reserve. Personal Finance begins with effective planning to have your money take care of you when you need it to.

Why it is Important to Save Money

The reasons for saving money can fall into the two general categories of planned and unplanned expenses.

Planned expenses can include:

• Retirement
• Buying a home
• A wedding
• College education

Planning for these expenses can call for the assistance of a financial adviser and a structured process for attaining these goals

Unplanned/ unforeseen expenses can include:

• The loss of a job
• Medical bills
• Home or car repairs

Preparing for these types of unforeseen events requires you to build (a highly liquid) emergency fund. Before you begin saving for either planned or unplanned expenses, through, you’re going to want to eliminate any high-interest, bad debt.

Bad Debt v. Good Debt

In personal finance, bad debt refers to financing things that are consumed and provide you no return. Bad debt is the usual culprit in unhealthy financial situations. Credit card debt is usually considered bad debt because of the nature of items that credit cards are used to purchase and the accompanying high interest rates.

Good debt is the idea that some of your debt should be considered an investment. Good debt is about financing the purchase of things that will increase in value, like a home. Student loans are generally considered to be good debt as well since the education should enable you to make more money over the course of your lifetime.

The road to financial health begins with the elimination of bad debt and is followed by the creation of an emergency fund and an ongoing savings plan.

An Emergency Fund- Planning for the Unexpected

After you have eliminated any bad debt, your next fiscal responsibility is to build an emergency fund, which most experts will tell you should be at least 3 months of your living expenses. More conservative planning would put this between 6-8 months.

An Ongoing Savings Plan

Beyond that, the rule-of-thumb is to try to save at least 10% of your income annually for retirement and other planned expenses. While 10% is a commonly recommended, the amount can be impacted by such variables as:

• How early you want to retire
• The lifestyle you anticipate after retiring
• How much you hope to leave to your heirs

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The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax advisor.

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