The 10 Things Everyone Should Be Saving For
If you're an avid reader of Wise Bread, you consume a lot of articles about saving money in the short term and on everyday necessities, but what about saving for the long term? And what should you be saving so much money for? Everyone has different goals, hopes, dreams, and obligations, of course, but here are 10 potentially costly things that you should be saving for — according to me, at least — with a few included that can potentially help you make more money, so you can save even more. (See also: How to Get Paid for Saving)
1. Paying Off Debt
First things first, you need to pay off your debt. Before you can start saving for anything worthwhile, you have to dig yourself out of the money-sucking hole that you created in the past. If you don't, that debt will follow you for the rest of your life, and everything from this point on will be a financial burden that can lead to stress, health problems, loss of assets, bankruptcy, poverty, and more. Once you've settled those old scores, however, you can start concentrating on the future by putting away money that will lead to a better life — one that you'll be able to enjoy with a clear conscience and a clean slate.
2. Medical Emergencies
You never know when medical emergencies will pop up, so it's always good to be prepared. Even if you have insurance, you may have to dole out a few thousand dollars for medical expenses, depending on the procedure and how much your plan covers. If you don't have insurance, it's important that you start saving as much as you can right away. It's never a good position to be in when you need medical attention but can't afford it. This goes double if you have children, of course. Kids get sick more often and need more medical attention than their parents. You want to be able to provide the best care possible — and pay for it — so they can stay healthy and happy. (See also: Huge Medical Bill? Here's What to Do.)
3. Periods of Unemployment
We all know someone who's been laid off, and even when they have savings to rely on it's a harrowing prospect — especially when the savings run out. Nonetheless, it's better to be safe than sorry, so it's important to prepare for a period of unemployment with a fallback fund in the bank to make the search for a new job a little less stressful.
While saving for retirement seems like a no brainer, you might be surprised at the number of people who put this off until it's too late. There are also situations, of course, where people are already in a financial bind — which turns out to be a lifelong issue — that renders them unable to prepare for life after they're able or willing (or given the opportunity) to work. Make sure this isn't an issue for you by starting a fund in the present for your future retirement — whether it's a 401(k) through your employer or dedicated savings on your own if you're self-employed. We all deserve to live out our final days in financial security, but we're also in control of that outcome — and there's no reason we shouldn't be thinking ahead no matter how young we are. (See also: Retirement Planning if You're Under 30)
5. Children's College Funds
I don't have children, but I've heard that they grow up before you know it. That's why you should start a college fund for your child as soon as they come into the world, or even before. The amount you contribute to the fund each week or month doesn't matter too much — whatever you can afford is fine. What matters most is that you're contributing at all so you can offset the incredible cost of college when your children are ready to leave the nest.
That said… many parents feel strongly that their children should take a more active role in providing for their own college educations, whether through academic or athletic excellence, their own income and savings, or some combination. In fact, recent research has shown that students whose parents support them through college earn lower GPAs than do students who pay their own way (although graduation rates are higher for students supported by their parents). (See also: Reasons Not to Save for Your Child's College Fund)
In addition, parents often have to decide whether to save for their children's college or for their own retirements. Most personal finance experts agree that retirement saving comes first because there are more college funding options available (grants, loans, scholarships, etc.) than there are for retirement. For both, however, the key message is the same — save early and save often.
6. Home and Car Repairs
Your fridge conks out without warning and needs to be replaced. The transmission falls out of your car. For home and car repairs, it's good to have at least $2,000 at your disposal so you can address whatever situation immediately. Furthermore, you don't want your inability to pay for repairs to your home or car to start affecting other parts of your life, namely how you provide for your family. If you can't get to work because you can't afford car repairs, that situation could snowball into an even bigger problem than it already is. Avoid that by being conscious of the probability of pop-up home and car expenses and start saving for them.
7. Investment Properties
Up to now all the things I'm suggesting you save for are scenarios in which you'll never see that money again — unless your kids become millionaires thanks to that college fund you set up for them and decide to write you out a fat thank-you check. Until that day comes, you can save to improve your current financial situation by making more money.
If you've settled your debts, don't have many other expenses, and thus find yourself in a position to save to invest, I highly recommend it. Saving for an investment property, in particular, can provide additional income by renting it out on a short- or long-term basis. My husband and I recently purchased a second home that we rent out short term (we crunched the numbers, by the way, and there's much higher income potential doing short term rentals versus a full-time tenant — and we get to enjoy the house whenever there are no bookings). It was a major life decision for which we saved, but in the end it was a smart decision (for us) because of the positive financial implications down the road. Could be for you, too.
8. Entrepreneurial Endeavors
Outside of an investment property, you should be saving to become your own boss — if that's something you aspire to be — and the type of business you want to pursue will dictate how much you'll need to save.
For instance, I own a marketing and public relations company that recently celebrated its fifth anniversary that only required an initial investment of $2,000 because of the nature of the business (mostly conducted online) and its low overhead. On the flip side, I've been toying with the idea of opening a restaurant someday, which will require a much more substantial investment that will require a healthy amount of saving. That will take a couple years, I think, but everyone's timeline for their own business will be different based on their saving and spending habits. Regardless, if you have aspirations of entrepreneurship, start saving today to make your dreams come true.
9. Life's Little Luxuries
Yes, we should all be saving for emergencies, medical bills, home and car repairs, and other necessities, but there comes a time when you need to treat yourself to make your life worthwhile. That's not to say that you should be treating yourself every chance you get, however. Rather, choose one big-ticket item (that's relative, of course) for which you'll save throughout the year to help infuse a small measure of happiness into your existence — despite how fleeting it is. It could be a vacation or down payment for a new car or a stack of mint-condition comic books. Whatever it is, making a conscious decision to save for it so you can enjoy some of life's little luxuries. (See also: Little Luxuries That Go a Long Way)
10. Caring for Elderly Parents
None of us want to think of our parents getting to an age where they need assisted living, but it's a reality — and it's good to be prepared financially in the event that you have to find and fund care for your parents in their final years. This is becoming increasingly common since we're all living longer in general and because many older people have much less to live on these days due to the high cost of living. I'm not here to tell you how to handle this situation — it's very personal — but I can't imagine that it will make you feel very good if you're not able to help out in some way as your parents live out their last years in someone else's care if they require it.
Do you have other things for which we should be saving? Let me know in the comments below.