Set aside $1,000 in the bank right away. (We call that a starter emergency fund, or Baby Step 1.) This puts a cash buffer between you and those life happens moments. If you’ve got debt (which we’ll talk about more later) keep that emergency fund at $1,000 until you’re debt-free (that’s Baby Step 2). 

When the debt’s gone, you need to save up what we call a fully funded emergency fund (Baby Step 3). This is three to six months of expenses and will protect you against bigger emergencies, like job loss or your car going kaput.

Another reason to put money in savings is if you’re planning any big purchases. This includes saving up for a reliable car to replace the one you know is on its last legs (er . . . last tires?).

The key word here is know. When your car breaks down, to your complete surprise, that’s a job for the emergency fund. But when you know your beater is hanging on by duct tape and prayer, that’s when you start saving for a replacement.

What about the fun big purchases? Like vacations, new furniture or that boat to make all your fishing dreams come true? You should save up cash for these too! But get to the luxuries after you’re debt-free and have some solid financial security. (The boat can wait!)

The final reason to save up money is for wealth building. Once you’ve paid off your debt and are sitting on top of that fully funded emergency fund, it’s time to start saving for the future!

At this stage of the game, you should invest 15% of your gross income for retirement savings.