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[MUSIC PLAYING] So once you've made your budget and you've figured out how you're tracking the money coming into your life and the money going out of it, the next step is learning everything you can about savings-- how to do it, why it's important, what you should be saving for, and the best strategies to help you reach those goals.

The biggest and most important thing to know about savings is that the sooner you get started, the better off you are. Even if you don't already have specific goals in mind for your money long-term-- although, I hope by the end of this series, you will-- just starting to put away that money regularly will come in handy before you know it and will help you start to build those really good money habits, where savings feels like something exciting to do with your money and watching that number go up feels thrilling rather than always feeling like savings is the least fun thing you can do with a little bit of extra cash.

And if you do not have any money in your savings yet, do not panic because you are very much not alone. According to a recent survey by Bankrate, most Americans have fewer than $1,000 saved and 39% of Americans have no savings at all. So there is no time like the present to get started.

So let's first start things off with a quick overview of these savings accounts that everyone needs. Because, yes, in general, you should have more than one savings account. Your first and most important is your emergency fund.

This is money that should be readily accessible to you in a savings account, although I personally recommend making sure that you keep this money in a separate bank than your checking account so that you can't easily access the money on a whim. And while you'll hear recommendations everywhere from putting $1,000 in your emergency fund to up to a year of living expenses in your fund, I think aiming for something around three months worth of minimal living expenses is a good goal. And your emergency fund is the most important because it's exactly what it sounds like, money that you need to have in case of emergency.

If your car breaks down, if you need to replace your laptop, if you unexpectedly get sick without very good insurance or without insurance at all, if you unexpectedly get laid off, this is the money that you need to access to make sure that you can get by while looking to rebuild. And this means that an emergency fund is not to be used for going on vacation with friends or buying a purchase that's nice to have, but not need to have. If your money is not there specifically for an emergency, then it completely defeats the purpose of having it.

And while there are tons of varying opinions about how much a person should have in their emergency fund, there are some minimums that experts have generally agreed are helpful to people, even at lower incomes, to stave off most of the worst. For example, economists Emily Gallagher and Jorge Sabat found that for low income households, about $2,500 in a savings account would stave off most disasters. So it works as a good minimum savings rule, although they do stress that more is always better.

And yes, the size of your emergency fund will grow or shrink depending on life circumstances or other priorities. For example, if you know that in a worst case scenario, you could move back in with your parents, or you don't have a car that will break down and need expensive fixing, or you've managed to minimize other areas in your life where an emergency expense would have a massive impact, you may be able to have a bit less in your emergency savings. But you should always calibrate it to the needs and expenses of your life to make sure that unexpected emergencies are not going to put you in financial ruin.

Once, you've gotten your emergency funds squared away, the next most important place where you're going to want to focus your savings is on your retirement. And this is the type of savings where starting early can make the biggest possible difference not only because your retirement is generally going to be the longest-term form of savings that you make, but also because many of the most important retirement savings vehicles-- or places to keep your retirement savings-- are going to be investment accounts, which accrue compounding interest over time. And you may be wondering, why shouldn't I just keep my retirement savings in a regular savings account like I would my emergency fund?

And that's because retirement accounts come with special tax advantages that you'll want to take advantage of. And there are two types of these accounts, tax deferred and tax exempt. Tax deferred means you don't pay taxes on the part of your income that you direct or contribute to your retirement account, but you will pay taxes when you eventually withdraw that amount from the retirement account.

So if you have an income of $40,000 and put $2,000 into a tax deferred retirement account, you would only pay taxes on $38,000 of your income. Tax exempt, on the other hand, does not have immediate tax benefits. You contribute to them with after-tax dollars, but when you make the withdrawals, you do not pay taxes on the growth of the account, as the investment returns grow tax-free.

Both types will save you money in the long run on those taxes. It's just a difference of when that benefit is realized. We'll get into some of the different types of specific retirement accounts in a later video, when we talk about investing in general.

What's important for everyone to remember, though, no are the specific types of retirement accounts you're going to be taking advantage of, is how much you should really be putting toward retirement in an ideal world. If we assume that most of us are going to retire somewhere around the age of 65-- although I know many people want to try and save to retire earlier than that-- experts suggest that you should be trying to save 10% to 15% of your overall income specifically for retirement, and starting in your early 20s is the best and most ideal time to start. Of course, for many of us, that's not going to be realistic, but do remember that saving for retirement has to be a very big priority in your overall savings strategy.

And while you may only be able to contribute a tiny amount now, do remember that money that will be accruing compound interest year after year for such a long period of time between college and retirement is going to be some of the best work your money can possibly do for you. The next category of savings we have is short-term savings This is the kind of savings that you'll want to keep, again, similarly to your emergency, fund in an easily accessible, high yield savings account. It's important that this money be in these savings accounts because it needs to be liquid or easily accessible when you need it.

If, for example, your short-term savings were put in the stock market, you could be in a position where you have to take the money out at a very inopportune time and be hugely disadvantaged for doing it. Typically, short-term savings are going to be the things happening in the next year or so that you want to dedicate an account towards so that you can be sure to have the money when you need it. Think about things like you're going to be moving soon and want to set aside expenses for that, you have an upcoming trip planned, you want to potentially even buy something like a new car.

Shorter-term savings goals can vary from the very important to the more frivolous, but the point is there are the types of money you're going to want to have easily accessible. These are often the savings categories for which people will have many different savings accounts so that they can easily put different money toward different things. Rather than having one, big account with just a randomly generated account number that goes toward all of your small short-term savings goals, you can have one account labeled New Car, one account labeled Summer Vacation, one account labeled a Big Move.

For many people, it makes these diverse goals a lot easier to reach. Then, lastly, somewhere between short-term savings goals and retirement savings goals, you have your long-term savings. These are things that you will want to save up for for a while, but usually long before retirement-- often something like between the next five and 10 years.

For some, it might be things like saving up a down payment for a house or wanting to go back to school to pursue a new degree. As I mentioned for your short-term savings, you'll want to keep them in something like a high yield savings account so the money is easily accessible. But for longer-term savings, you can use a mix of those high yield savings accounts along with investments.

Financial expert Miranda Marquit recommends breaking your investments into stocks, which are more volatile, and bonds, which are less so, but offer less potential for gains. She recommends this mix of savings if you have a healthy emergency fund because it's a way of putting your money to work without much involvement on your end. You do want to make sure, however, that you won't need the money in your investment accounts for at least five years.

Otherwise, you run the risk of losing money in the markets, which is something that actually happened to her when she had to pull money from her investments after her house suffered water damage. For longer-term savings goals that are even further from that five to 10 year vantage point, but still closer than retirement, you can still use something like a high yield savings account, but do remember that you will run the risk of inflation outpacing the gains that you will receive on that account. So you may be better off just investing that money.

You can also consider things like certificate of deposits-- or CDs. But do remember that your money isn't freely accessible when put into CDs. It has a set maturity date, and you can't use your money until that date.

The farther away the date, the higher your expected returns though, as some five-year and beyond CDs have interest rates around 2.2%. That means that if you invested $1,000 in a CD, by the end of five years, you would have earned about $160 in interest. No matter your goals and no matter your income, you should always be saving something.

Even if you can only afford to put $10 a month away into a savings account, just the act of doing it will help create and reinforce those better habits and a stronger relationship with money. Those economists I mentioned earlier, Gallagher and Sabat, believe that the most important thing is the act of saving itself, not necessarily having some big, specific number in mind. And if and when you do reach a specific savings goal, it's healthy to keep saving as if you hadn't.

And as you get closer to your savings goals, Gallagher says, you feel more motivated to attain them. It's called the goal-gradient hypothesis, and it's also why you might find yourself frequenting a coffee shop or lunch place with a buy nine, get one free punch card more often the closer you get to that free drink or free lunch. Essentially, savings becomes a bit of a snowball effect, where the positive feedback that you get from reaching smaller goals, and demonstrating that you can be diligent, and seeing those numbers tick up starts to create the feeling of wanting to do more of it.

For me, it's easily comparable to working out. I used to absolutely hate exercising until I started to force myself to do it regularly, and then I got to a place where the inertia of exercising actually made me want to do it. I've had the exact same experience with savings, and now it's one of my favorite things to do to check those numbers and see how I'm doing on some of my goals.

Whether you're putting away for your emergency fund, retirement, long-term, or short-term savings goals, the point is that you be consistent and start early, no matter your current situation. Don't forget to check out the next episode in our guide to getting good with money for college students. And for all things talking about money, don't forget to check out The Financial Diet here on YouTube or all around the internet.