You’re Saving Again — That’s a Win

Give yourself some credit. Government data shows that many Americans have reduced debt, cut spending and increased savings since the financial crisis. In fact, personal savings have reached the highest level in years.

Now comes the next challenge. How do you use those savings wisely?

Where Should Your Savings Go?

You may want to rebuild retirement funds. You might be saving for college, a home, or repairs. Or maybe you just want a solid rainy-day fund.

The problem is simple. Most people cannot fund every goal at once. Even saving 10% to 20% of income often feels impossible.

According to Harvard economist David Laibson, only about 30% of Americans save consistently. Many others spend what sits in their bank accounts.

Think of Savings Like a Dresser

A helpful way to organize savings is to think of it like a dresser with drawers. Each drawer serves a purpose. How you fill them determines your financial flexibility.

The Emergency Cash Drawer

This is your most important drawer. It covers daily comfort and financial safety.

You should keep enough cash to cover several months of essential expenses. That includes rent or mortgage, utilities, food, and insurance. This fund protects you if you lose a job or face a medical emergency.

The Retirement Drawer

This drawer keeps you warm later in life. For most people, it requires steady contributions.

If your employer offers a 401(k), start there. Tax benefits and employer matches make it one of the best saving tools available. Aim to contribute enough to capture the full employer match.

The Lifestyle and Future Needs Drawer

This drawer gives you options. It covers car purchases, home repairs, vacations, and special goals.

Many families forget to plan for large expenses. As a result, they rely on credit cards later. A separate savings account helps avoid that trap.

Saving When You’re Just Starting Out

Early in your career, saving feels hard. Still, starting small makes a big difference.

Begin with emergency savings and high-interest debt repayment. Once those improve, start retirement contributions. Even small, regular deposits build strong habits.

Saving When You Have a Family

With children, expenses rise quickly. Day care, school, and activities add pressure.

Focus first on emergency savings and retirement. After that, consider opening a college savings account, such as a 529 plan. Small contributions can grow over time.

Remember, college does not need to be fully funded. Paying down a mortgage also counts as saving.

Saving When Kids Leave Home

When college expenses end, shift your focus. Increase retirement contributions as much as possible. Catch-up contributions can help in your 50s and 60s.

You may also want to plan for long-term care. This covers home health aides or nursing care later in life.

Saving in Retirement

Once retired, your dresser needs rearranging. Keep money needed in the next five years in cash or low-risk investments.

Funds needed later can stay invested for growth. If travel matters to you, keep a vacation fund. Some retirees also help grandchildren with education savings.

Final Thought

Saving works best when it has structure. Separate goals into clear categories. Fill each drawer with purpose. That approach turns savings into a tool — not a source of stress.

Email: familymoney@wsj.com

Source: WSJ