How to save for the future (when you don’t know what it looks like)

How to save for the future (when you don’t know what it looks like)

When I was considering building a bigger savings account and investing in the stock market last year, I was thinking: What if all that effort is not worth it in 10 years? What if I just lose all of this money instead of treating myself? These questions were chasing me for quite a while, but still, I managed to create a strategy. So, how to save for the future when you don’t know what it looks like?

The first step in my strategy was to build an emergency fund

The emergency fund will be a cash account which I would rely on in times of uncertainty or whenever I need access to additional funds. This way I’ll avoid getting in debt because of unplanned expenses. My strategy involves building an emergency fund that would cover at least 7-8 months worth of base expenses. This means that if my employer decides to cut jobs, I will be protected until I find another job. Covid19 is a proof of concept for this one.

The next step in my strategy is to create a travel and sinking fund. With the travel fund, it’s easy: I averaged the cost of the last 5 trips my partner and I had and that would be it. With the sinking fund, it’s a bit more complex. I basically needed to dig myself into all of my expenses for the past year, which are non-negotiable. These would be taxes, utility, phone, transportation, healthcare, etc. The amount I needed last year is pretty much the amount I would need this year, right? So I started to save some money on the side for that fund as well. 

Thanks to these 3 funds, I have a piece of mind that whatever happens, I would survive for another 7-8 months. 

I would also be able to travel and I would have all of my non-negotiable expenses covered. Then, what about the distant future, i.e. 10-20-30 years ahead? Well, didn’t these 3 funds leave you with enough money, confidence and security to think about building a family, new car or career growth? So, we have covered the “how to save”, now let’s look a bit more into the “for the future” part.

With these 3 funds, you will cover any emergency situations and have paved the road to saving more money and growing your income. I think this is the moment to start thinking about possible investments. I, personally, have been investing during the process of building the above 3 funds. Yet, this is not the case for everyone, but it gave me valuable experience and an understanding of how I could manage my money better. To save money for the future, you would need to firstly earn them somehow.

Investing in the long term is a great way to build wealth for your future self.

Long term investing is investing in assets, which you will hold for the long term, while they are bringing you more money with time. This is what the famous statement “earn money while you sleep” means. This type of investment could be dividend stocks, bonds or real estate. My personal preference among these is dividend stocks and I’ve started to build my portfolio mostly with them. Another way I’m looking for a long term investment is in real estate. Buying an apartment on a decent price, renovating whatever is needed, and then listing it as a rental. The goal would be for the rental payments to cover the mortgage payments. Should we then hold this property until it’s paid off? It’s not necessary! We may sell it at some point for the right price and this would be totally fine.

Another thing I currently do as a future investment is to read. I read a lot on personal finance and fitness and it helps me quite a lot to gain knowledge. The more knowledge I have, the better I would understand how things work and will be able to plan for the future. I’m currently reading “The Intelligent Investor”, by Benjamin Graham.

How are you saving for the future when you don’t know what it looks like?

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