One of the first things people do when they realize that they need to overhaul their spending is pay off their debt. They put a little money aside in case of an emergency and then go full force in paying down their debt. Making that last payment on a credit card or other debt is liberating and exciting.
The next step is planning for the future. This involves setting up an emergency fund. An emergency fund would cover an unexpected visit to the doctor, a major car repair, and other things that would significantly set you back if they were to occur. Once this emergency fund is established, focus on other forms of saving.
Many benefit from having a health savings account. They contribute money to the account and receive tax benefits from it. There are limits to the amount a person can contribute to a health savings account. However, the money is there for most situations that would require out-of-pocket payments regarding their health.
Another savings account a person should have is a 401(k) if their employer offers it. This account has tax benefits, and an employer may match a person’s contribution. If a person is self-employed, they should look at IRA options. The goal is to find the best way to plan for retirement.
Sinking funds are also beneficial. They allow a person to save a little each month toward a specific purchase. For example, a person may want to buy a new vehicle in the next year or two. They can automatically save a particular monthly amount in a savings account to go toward that purchase.