What to do with your savings, according to a financial planner

Most people would like to be saving more money.

Whether it’s to pad an emergency savings account, to eventually buy a house or to some day be able to take that dream vacation to Europe, it’s the general consensus that the more you can save, the better.

If saving equals good stuff, then why is it so hard for us, in general, to save more? These days things like student loan debt and an overall high cost of living can stop people from reaching their ultimate savings goals.

Plus, it can be hard to get started, since you’ll need to have a good understanding of your overall financials before you can actually plan to save more.

To that end, Molly Stanifer, CFP®, financial advisor with Old Peak Finance, suggests tracking your spending, then mapping out a budget to including your additional savings.

The most effective way to track your budget is to write down every expense as you incur it, said Stanifer.

“Just like if you are bringing attention to your diet, it forces awareness,” she said. “There are also apps — or perhaps your credit card company or bank already does this — for tracking your spending after the fact. That type of tracking software is good for spotting trends.”

Once you’ve tracked your spending and are starting to create a budget, Stanifer suggests using the following hierarchy of goals:

  1. Pay down high interest rate debt.
  2. Top up your emergency fund to a comfortable amount. Keep in mind that while the general guideline is still three to six months’ worth of your essential expenses, the actual idea behind this goal is considering how long it would take for you to find a new job should you lose your current source of income. “If you are in a dual-income household or a high-demand industry, perhaps you would feel comfortable on the lesser side of three to six months,” said Stanifer.
  3. Take advantage of all tax beneficial accounts, like a 401k, IRA and 529s.
  4. Invest in a non-retirement brokerage account to further your savings.

If you’re considering saving for a vacation or some other non-essential before you’ve established an emergency fund, paid down debt, or maxed out your retirement accounts, Stanifer suggests thinking twice.

“Sometimes we get focused on desires right in front of us and justify immediate gratification for sacrificing something that may be more beneficial to you in the long term,” she said. “Take a step back and project what impact each financial decision would have,” and consider shifting priorities, if need be.

As far as short-term savings goals go, Stanifer says a bank savings account or CD should work fine. If you do plan to work with an advisor for long-term investments, though, Stanifer says to proceed with caution and “make sure they are putting your interests ahead of their own. NAPFA advisors are all CFP professionals and are fee-only, held to a fiduciary standard.”

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