I promised a post about savings and I deliver! Here are some basic kinds of savings you should think about building:

• The Emergency Fund:  This fund should have three to six months’ living expenses. (Look at your monthly budget and mulitply by 6. That’s why we did the budget first.)  You only use this fund in real emergencies.  Real emergencies are job loss, serious illness, like that.
• The Life Happens Fund: I borrowed this name from Michele Singletary.  This fund (ideally, about $2,000) is what you use for big car repairs or when the fridge issues a death rattle.
• Retirement: The younger you are, the more important it is to start saving. If you start saving $100 a month when you are 25, you will have over $150,000 at 65, even if you never increase your contribution. (assuming 5% interest).  Talk to your human resources department at work and take advantage of every vehicle they offer for retirement savings. Some vehicles avoid taxes now and some avoid taxes later.  It’s worth some serious study or a meeting with a fee-only financial planner to discuss what’s best for you.
• Education:  College costs continue to rise at a faster rate than inflation and the debt burdens of graduates continue to grow. Financial institutions and states offer lots of ways to save for college expenses. Look to government sponsored sites for a discussion of the options that isn’t commercially motivated. Also, watch for the impact of savings on the availability of financial aid. Remember, retirement savings take priority over education savings. You can get loans for college, but not for retirement.

Once you’ve got these basics in place, you can look at other types of savings:

• Home renovations or new home purchase.
• A new car.
• Vacations.
• Your holiday expenses.
• Building a fund to make major charitable contributions.

If there isn’t room for those things in your budget, you can look at short-term budget cuts or pick up a few extra work projects or a seasonal job to make them possible.