Saving

When you have savings, you're better prepared to cover unexpected expenses without relying on credit and risking debt. Savings also help build the buying power you'll need to fulfill your dreams. There's no one right amount, but aiming for 5% of your income is a good place to start — and adding that dollar amount as a line in your budget can help you stick to it.

Whether you call it an emergency fund, a rainy day fund, or a reserve fund, it's money set aside for unexpected costs — a serious illness, an urgent repair, or a loss of income. Your fund should cover at least three months of your family's regular expenses, and ideally six in case of a situation that can't be resolved quickly. That way, if and when you need it, you won't have to turn to sources that harm your ability to build wealth — like maxing out credit cards, raiding a retirement account, or taking out high-interest loans.

Once your emergency account is funded, you can shift to saving for specific goals. Some are short term — something within the next year. Medium-term goals might be five or more years out, like buying a car or home. Long-term goals might include a secure retirement or funding college. To make them concrete: define your goals, estimate the dollar amount you'll need and how much to save each month, then track your progress and adjust.

When you're exploring options, find a bank that offers FDIC insurance, which protects up to $250,000 in each of your eligible accounts. Beyond a basic savings account, banks offer several places to grow your money:

While savings accounts carry relatively little risk, the rate of return is typically less than the rate of inflation — the increase in prices and the resulting loss in your money's purchasing power. So while it's wise to keep some cash, like your emergency fund, in savings, it could be hard to build wealth if you put all of your money there. For longer-term goals, consider accounts or investments with returns that can outpace inflation.