Having a savings account is very important. It does not really matter how much money you may make in a year, everyone should prepare and plan for unexpected events and situations (i.e car repairs, house repairs, work leave). When unexpected costs arise if you don't have money stored away you could end up taken extreme measures to make ends meet; therefore, it is important to have atleast 3 to 6 months of reserve money just in case you may need it.

How much should you have put away for a rainy day? Experts say you should calculate your monthly recurring expenses (mortgage, energy bills, car notes etc) and multiply this by 3 or 6. Most of the time if you are single you should aim for 3 months. If you are married and/or have a family 6 months should be your goal.

The best way to reach these goals is to prepare a budget, an financial plan estimating expenses you will incur each month. A budget may take a month or two to fine tune, to maximize savings, analyze all expenses, and account for all sources of income.



Four Steps to creating a Budget:

1. List obvious primary expenses (Mortgage/rent, Electric Bill, Food, Telephone, and Car payments)

2. List secondary expenses (credit card bills, cell phone bills, gas for car, cable tv bills, memberships to the gym etc)

3. Focus on your income sources, average the net income for the last 6 months and use this number as the least amount of incoming expected (if there are supplemental sources of income average the net income for the last 6 months as well, you can use this as "secondary expected income")

4. Organize these figures into this equation: IE+SEI>(PE+SE)

This is "income expected plus secondary expected income is greater than primary expenses plus secondary expenses." If you subtract the sum of this equation [(IE+SEI)-(PE+SE)= Savings] this will ultimately result in your projected monthly savings.

For an example of a personal budget click here.

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