Saving (EPF)

Reasonable amount to save from income

About 20% of your take-home pay

Savings category includes

Emergency fund, (401K) retirement, piggy bank fund, higher education (529 account)

Why start saving early

More time for compound interest and stronger financial habits

Compound interest

Interest earned on both the original money and previously earned interest

50/30/20 rule

Budgeting method dividing income into needs, wants, and savings

50% category

Needs or required living expenses

30% category

Wants or optional spending

20% category

Savings for future goals and emergencies

Income used for budgeting percentages

After-tax (take-home) income

Needs examples

Housing, groceries, utility bills, insurance, transportation

Wants examples

Eating out, entertainment, shopping, hobbies, charitable gifts

Savings examples

Emergency fund, retirement, investments, college savings, long term dreams

When 50/30/20 may not work

Low income, high debt, high cost of living, or irregular income

Automated savings

Money transferred to savings automatically

Best saving strategy

Save money as soon as you receive your paycheck

Pay yourself first

Put money into savings before spending on anything else

Benefit of automating savings

Guarantees consistent saving without relying on willpower, your money is automatically transferred

Reason some prefer manual saving

More control, irregular income, or fear of overdrafts

Emergency fund

Money set aside for unexpected expenses

Recommended emergency fund amount

3–6 months of living expenses

Why 3–6 months is recommended

Covers job loss or major unexpected expenses

Why keep emergency fund separate

Reduces temptation to spend and protects it for emergencies

Appropriate emergency fund use

Paying a car insurance deductible after an accident

Inappropriate emergency fund use

Routine bills or planned purchases

Emergency fund challenge

Difficulty saving consistently

Emergency fund solution

Automate savings and start small

Credit cards saving challenge

Encourage overspending and increase debt

Living paycheck to paycheck

Using all income to cover expenses with little or no savings

Reason many lack emergency savings

High expenses and insufficient income

Other saving challenges

Inflation, high rent, medical bills, student loans, impulse spending

Inflation

The general rise in prices over time

Effect of inflation on money

Reduces purchasing power

Purchasing power

How much goods or services money can buy

Why inflation matters even if wages rise

Prices often increase faster than wages

How inflation affects savings

Savings lose value if they do not grow

How to counter inflation

Invest money and earn returns higher than inflation

Most important saving habit

Consistency

Best time to save

Immediately after receiving income

Why saving reduces stress

Provides financial security during emergencies

Long-term benefit of investing

Grows wealth and protects money from inflation

Credit cards

Short term loan that allows you to borrow money for purchases, but paying the bank back later