The title above includes the Morse code representation of the international distress signal S-O-S, commonly referred to as “Save Our Souls”.
To avoid financial distress you may find yourself in the situation of having to “Save Or Sink” or “Salvage Our Savings”.
Given all the economic turmoil of the last two years, saving must have greater importance for everyone. Saving is important. And saving is different from investing. You cannot invest money you do not have so you need to be saving before you can start investing.
Saving can be viewed as short-term and safe. Investing is long-term and there is some level of risk. So where you put savings will usually be different from where you invest money.
Saving is how you build a cash emergency fund (usually 3 to 6 months of living expenses) and a cash financial cushion. The emergency fund should, of course, be for emergencies. The cushion can serve as a way to meet non-emergency needs that fall outside your normal monthly expenditures. Saving is also how you set aside money in a safe, low-risk place for near-term goals.
No amount is too small for beginning a program of regular saving. If you doubt it is possible, start saving some amount and prove to yourself it is possible. The objective does not need to be saving a huge amount. It is not a competition with anyone else. You are responsible for your own situation so save in the context of your personal situation. Show yourself that you can spend less than you earn. Spending less than you earn is the key to saving any amount of money and to accumulating wealth in the long term. Determine your emergency fund and cash cushion goals and get started.
In addition to regular saving, one savings approach I highly recommend is having a savings account for large non-monthly or irregular expenses such as annual or 6-month insurance bills, annual renewal bills or vacations. Add up all your known non-monthly expenses, divide by 12 and save that amount each month. When the irregular bill comes due money will be available for that payment.
To go along with this, I also recommend setting up, or considering, an automatic withdrawal to your savings account(s). That way you don’t have work as hard to be disciplined in your saving.
There are a variety of places to put savings and earn some level of interest while preserving safety and accessibility. These include local bank savings accounts, on-line bank savings accounts and CDs (certificates of deposit). As your savings program establishes itself, you should give consideration to the type of return you can get on your money. Even if an interest rate is low, some return is better than none. The higher an interest rate or return you can find, the better. Once you have attained your emergency fund and cash cushion goals you can begin to work on your investing goals.
An article I read after I wrote this gives good insight into saving options and considerations:
A disciplined savings program is step one in protecting yourself against financial distress.