Life is unpredictable and can throw unexpected expenses at us at any moment. Having a savings buffer allows us to tackle emergencies such as medical bills, car repairs, or a sudden job loss without falling into debt or financial distress.

Why do we need to save money?

The key to building wealth is patience. Understand that building wealth takes time, and try not to make it too complicated.Let's assume you make $3,000 a month, you spend $2100 and save $900.Now let us group our savings into sub-categories -<ul><li>Retirement Account</li><li>Emergency Fund</li><li>Savings</li><li>Bonds</li></ul>

The secret of building wealth

Let's say you are 30.You plan to retire at 60.Your life expectancy is 80.Your future monthly expenses are $1500 per month.Now let's calculate your retirement savings.=> Future Monthly Expenses * Months in a Year * Number of Years=> $1500*12*20 = $360,000.According to our calculations, if you save $300 per month for 30 years at a 7% compound annual return, you will have $368,126.25 waiting for you in uour retirement account.

Retirement Account

They are the expenses that may occur unexpectedly. Aim to save at least three to six month's worth of living expenses in an easily accessible account.Emergency Fund Required = Monthly Expenses * Number of Months=> $2,100 * 3 = $6,300 If we save 20% or $180/month of our savings amount for our emergency fund, in 2 years & 11 months we will have $6300 in our account.

Emergency Fund

Savings accounts often offer a modest interest rate 2.5-5% more or less , allowing your money to grow over time through compound interest. They are helpful to reach your goals or for any big investment you may have in the future.Aim to allocate 20-25% into your savings account.Assuming your bank gives 3% interest, if you save 25% or $225, after a year you will have $2,743.88 in your savings account.

Savings

Bonds are low-risk investments that provide a fixed income over time. Including bonds in your investment portfolio can provide stability and consistent returns, especially for long-term financial goals. Saving the rest of your money, $195 at 5% interest rate.Starting from July 2023, after 10 years you will have $29,493.75 .

Bonds

Saving & investing your money may not make you a millionaire, but it will become your shield during any financial distress. As we said earlier, patience is the key to building wealth. Determine how much you can save each month based on your income and expenses. Aim to save a percentage of your income regularly, even if it's a small amount initially.

Final Thoughts

Building wealth is simple - It requires patience. Here are 4 simple ways to multiply your wealth and save yourself from any future financial distress.

Life is unpredictable and can throw us into financial distress at any moment. Having a savings buffer allows us to tackle emergencies such as medical bills, or a sudden job loss.

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How To Build Wealth And Supercharge Your Savings?

Debt is a word that often brings about negative connotations, but not all debts are created equal. Understanding the difference between them can help you make smarter financial decisions.Obviously, debt means owing money—especially money that needs to be paid back with interest. Good debt helps you reach your goals, while bad debt can hinder your financial progress.

Debt can be good?

Good debt can be thought of as an investment for your future. It means borrowing money for something that has the potential to increase in value or generate income over time.Good debt ultimately contributes to your wealth and happiness. Let's see some examples👇

Good side of debt

<h2>Education </h2><ul><li>Taking out a student loan to pursue higher education can be considered good debt.</li><li>Research shows that individual earns 66% more than those with just a high school diploma over their lifetime.</li></ul><h2>Home Mortgage </h2><ul><li>Buying a house with a mortgage is often seen as good debt. Over time, real estate tends to appreciate in value, meaning your investment can grow and you can even sell it at a profit.</li></ul><h2>Business Loan </h2><ul><li>Starting a business requires capital, and taking a loan to finance it can be seen as good debt.</li></ul>

Examples Of Good Debt

On the other hand, bad debt refers to borrowing money for things that lose value overtime. These debts often come with high-interest rates and can trap you in a cycle of financial stress.It means paying for unimportant things which makes your goals harder to achieve.Let's see some examples👇

Bad side of debt

<h2>Credit Card Debt </h2><ul><li>Accumulating credit card debt by purchasing non-essential items or living beyond your means is considered bad debt.</li><li>Some credit card companies charge as high as 40% p.a.</li></ul><h2>Luxury Car Loans </h2><ul><li>Taking out a loan for an expensive luxury vehicle can be classified as bad debt. Cars typically depreciate in value over time, meaning you may owe more than the car is worth.</li><li>A new car can depreciated by 8% to 10% as soon as bought.</li></ul><h2>Payday Loans </h2><ul><li>These short-term loans often target individuals in need of quick cash. They come with exorbitant interest rates and fees and may exceed 400% APR.</li></ul>

Examples Of Bad Debt

Understanding the difference between good and bad debt is essential. However, it's equally important to have a strategy in place to effectively manage our debts and foster our financial growth for the future.We always need to make a plan to repay what we owe, finding ways to lower interest rates, and focusing on important payments.

So what's next?

Debt can be your best friend or it can be your worst nightmare depending upon how you use it.

Debt is a word that often brings about negative connotations, but not all debts are created equal. In fact, there are good debts and bad debts.

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Good Debt vs Bad Debt

Managing personal finances can often feel overwhelming and complicated. The amount of money you should save each month varies based on your goals.Your ideal savings rate depends on your specific, long-term reasons for saving.  But what if there was a simple rule that could help you navigate your income and expenses?

Finance Management

The 50-30-20 rule suggests dividing your after-tax income into three categories— needs, wants, and savings.Do not subtract other amounts that may be withheld or automatically deducted, like health insurance or retirement contributions. Those will become part of your budget.

Enter the 50-30-20 rule.

Needs are those bills that you absolutely must pay and are the things necessary for survival. Essentials like housing, utilities, transportation, groceries, and healthcare fall under the "needs" category. These are the expenses required to maintain a basic standard of living. Aim to allocate around 50% of your income to cover these necessities.

Your Needs (50%)—

Wants are all the things you spend money on that are not absolutely essential. Such as your netflix subscription, dining out, vacations, hobbies, and shopping.It's important to enjoy life and indulge in things you love. So try to allocate around 30% of your income towards fulfilling these desires.

Your Wants (30%)—

The remaining 20% of your income should be dedicated to savings, which includes building an emergency fund, investing for retirement, paying off debts, or saving for future goals like buying a house or starting a business. This portion helps secure your financial future and grants you peace of mind. As a general rule of thumb, you should have at least 3 to 9 months of emergency savings on hand in case you lose your job or an unforeseen event occurs. After that, focus on retirement and meeting other financial goals down the road.

Your Savings (20%)—

Saving is difficult, and life often throws unexpected expenses at us. By following the 50-20-30 rule, individuals have a plan with how they should manage their income. Your savings and wants can be different depending on your own situation and what you want to achieve financially.

Bottom Line

Do not save what is left after spending, but spend what is left after saving.

Finance management is important, without which we will always struggle no matter how much money we make.

How To Build Wealth And Supercharge Your Savings?

Good Debt vs Bad Debt

The 50-30-20 Rule - Simplifying Your Finances for a Better Future

Mayank Bansal