Saving

As you know, saving money (or investing it) is an essential component of an effective budget. Not only may you eventually use these funds for the goals you've established for yourself, but they can also serve as an important safety net if you face unexpected financial challenges. Whether it's saving for that dream home in three years, or using your emergency funds to see you through an unanticipated downsizing, having adequate savings allows you to realize dreams and offers peace of mind.

Identifying your goals

The amount you should be setting aside in savings every month is directly linked to your financial goals and where you want to be in the future. While everyone's situation is different, many people share similar objectives. Supporting a family, buying a house, sending children to college and enjoying a secure retirement are a few examples.

You probably also have some goals that are unique to you and your family. Perhaps you'd like to start a small business, be able to provide for an aging relative or plan an expensive vacation overseas. Whatever your goals are—no matter how large or small, near- or far-term—they all require planning, and have a price tag. Saving and investing can help you achieve those goals.

When you are formulating your goals, it is important to be as precise as you can. For example, housing expenses can differ significantly based on where you want to live and the size of the apartment or house you want to live in. College tuition will vary based on whether your children go to a private or a public institution and whether they pursue a two-year or a four-year degree.