Many financial planners recommend setting aside a minimum of 10 to 15 per cent of your gross income to save or invest for the future. Most experts agree that you should allocate the money among different investments or savings vehicles as well as an emergency cash fund.
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An alternative to the 10 per cent rule entails trying to use only 60 per cent of your monthly income for bills and expenses, and utilising the remaining 40 per cent for investing and achieving financial goals. How you distribute the 40 per cent depends on your particular financial plans in the short and long term, such as retirement funding and liquid or cash savings.
An emergency fund, in the form of an easily-accessible liquid savings account, should be kept for those unpredictable or emergency expenses, such as auto or home repairs. Your emergency fund should include the equivalent of three to six months of your total monthly income, and this amount should be saved prior to saving or investing money anywhere else.
Invest or Save
In simplest terms, saving refers to money you do not spend, while investing refers to money you put into a particular investment to enable your money to multiply. The matching amount your employer may contribute should not be counted as part of the 10 to 15 per cent invested or saved each month.
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