Start saving
The financial crisis continues. But every once in a while, it's good to take a deep breath and get back to basics. So let's take a minute to talk about saving.
One quick word: ignore people who tell you that you need to spend for the sake of the economy. If you're not saving any money now, start. If you need to be saving more, then save more. The fact that our economy developed to a point where it depends on "consumerism" in order for it to grow is not a good thing (a subject for another time) and it's not your problem.
The way it's supposed to work is this: first you save, then you invest. How much should you save? Somewhere between 10% - 20%. 10 is probably too low to preserve or improve your current lifestyle over time. 15 - 20 probably will allow you to at least preserve, if not improve your lifestyle over time.
These numbers are educated guesses. And they don't really account for the possibility that the U.S. dollar will depreciate in value more quickly than it has over time (a subject for another time). But they're a good starting point.
My experience has been that most people don't even save 10%. And those that do save that mostly through their 401k's. There are problems with this approach that I can't go into here. But the main problem is that the money in your 401k won't serve effectively as an "emergency reserve. You need an emergency reserve before you invest for the long-term. Here's how you should proceed.
Once you are saving at least 10%, you should put that money somewhere safe and build up an "emergency reserve." That reserve should be "liquid," meaning it can be tapped for any emergency in a matter of days. Something like a safe money market would do. Bank CD's are OK, as long as they're not tied up for too long and as long as your whole emergency reserve isn't tied up in CD's.
The point: save, secure your savings, and then - only then - think about investing money.
One quick word: ignore people who tell you that you need to spend for the sake of the economy. If you're not saving any money now, start. If you need to be saving more, then save more. The fact that our economy developed to a point where it depends on "consumerism" in order for it to grow is not a good thing (a subject for another time) and it's not your problem.
The way it's supposed to work is this: first you save, then you invest. How much should you save? Somewhere between 10% - 20%. 10 is probably too low to preserve or improve your current lifestyle over time. 15 - 20 probably will allow you to at least preserve, if not improve your lifestyle over time.
These numbers are educated guesses. And they don't really account for the possibility that the U.S. dollar will depreciate in value more quickly than it has over time (a subject for another time). But they're a good starting point.
My experience has been that most people don't even save 10%. And those that do save that mostly through their 401k's. There are problems with this approach that I can't go into here. But the main problem is that the money in your 401k won't serve effectively as an "emergency reserve. You need an emergency reserve before you invest for the long-term. Here's how you should proceed.
Once you are saving at least 10%, you should put that money somewhere safe and build up an "emergency reserve." That reserve should be "liquid," meaning it can be tapped for any emergency in a matter of days. Something like a safe money market would do. Bank CD's are OK, as long as they're not tied up for too long and as long as your whole emergency reserve isn't tied up in CD's.
The point: save, secure your savings, and then - only then - think about investing money.
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