Ideally, you want enough emergency savings to cover three to six months’ worth of living expenses. It may take a while to accumulate that much, especially if you’re starting from nothing. Arranging automatic deposits to your savings account from your paycheck can make it easier to save. If you receive a tax refund or bonus, consider putting part or all of it toward your emergency fund to help build it up faster.
Since you can’t predict when you’re going to need the money, you’ll probably want to keep your emergency savings in liquid accounts that you can easily access without paying penalties, charges or termination fees. Any time you take money out of your emergency fund, try to replenish it as soon as possible. Typically, the recommendation would be to prioritize building your emergency fund first, prior to other investment or savings strategies.
Building Wealth
Wealth is the entire financial picture of an individual or family in addition to savings accounts, including all investment accounts, properties, insurance policies and various assets.
How to build wealth
The methods for building up savings or wealth can feel similar in some ways. Setting aside a certain amount of money from your salary is a best practice, no matter the goal, but the mindset is different. Wealth management lends itself to more complexity, with multiple savings vehicles, tax strategies and long-term factors to consider. Traditional savings, however, can favor simplicity. Banks, including FNB, offer relatively straightforward accounts with favorable interest rates that regularly compound rather than fluctuate with market swings. Regardless of how you save, it all contributes to financial security.
Turning short-term savings into long-term wealth
The first step toward successfully building wealth is having disciplined savings habits. After you have achieved your emergency fund goal, regular contributions to other savings or investment vehicles are a productive way to increase your money’s earning potential. When deciding which accounts or strategies align with your needs, there are multiple factors you need to consider.
- Goals: What is the money for? The answer can determine whether funds are directed at income-producing or growth-focused investments. For example, a retirement fund generally does not need to produce income until you retire, so you can emphasize a growth strategy until retirement nears and then switch to an income-focused strategy. The closer you get to retirement, the more you should be thinking about just how much you’ll need when regular paychecks aren’t coming in, so goals can always be adjusted to meet current or future needs.
- Time and risk tolerance: All investing involves a certain amount of risk. You’ll need to balance your tolerance of price fluctuations against the required rate of return to determine your appetite for investment risk. Time offsets risk, so if you plan to hold an investment for a long time, you may be able to tolerate more risk because you have the time to make up any early losses. For a shorter-term investment, such as saving to buy a house, you may want to take on less risk and have more certainty and liquidity in your accounts.
- Monitor progress and adapt: Hiring a financial advisor is crucial to staying on track. You can do this by holding regular meetings to check on progress in meeting your goals, rebalance asset allocations, and update your plan to account for major life events (marriage, children, career changes, etc.).
Tools for unlocking financial security
Saving money is among the most basic and important financial behaviors, but it’s not a habit everyone can easily develop. The proper tools — such as various accounts and services that automate regular deposits into those accounts or advisors — can give you a leg up while you develop sound and sustainable saving and wealth building behaviors.
At FNB, products and services such as savings accounts with varied rates and features, multiple types of certificates of deposits, more specialized accounts (ex., health savings accounts) and expert wealth management professionals make it easy to get started and achieve goals. Leveraging these tools at the right time is key to building or preserving wealth today and for generations to come.
Learn More: Creating a Budget
