What Am I Supposed to Save For?

By: David Gatchell, author of The Financial Empowerment Handbook

As young adults, you might often hear adults talk about "saving for a rainy day," but what does that really mean? If you’re in high school or just starting out with your first job, you may think of all the money you earn or receive as free to spend. After all, life is about having fun, right? Well, while it’s great to enjoy your hard-earned money, it’s also important to think about the future, especially when it comes to saving.

So, what should you be saving for?

Emergencies: The Unexpected Purchases

Imagine you’re driving to class or your job, and out of nowhere, your car tire blows out. You’re stuck on the side of the road, and now you need a new tire, possibly even more repairs. The problem? You didn’t plan for this, and it’s going to cost you. Emergencies like these are bound to happen. Whether it’s a flat tire, a broken phone, or an unexpected medical bill, these events can take a big chunk out of your budget.

Having an emergency savings fund is like having a safety net. It’s there to catch you when life throws an unexpected expense your way. A 2024 survey from Bankrate.com illustrates that one out of four people in the U.S. have no emergency savings at all. Even more concerning, the survey indicates that one in three Americans have more credit card debt than emergency savings!

For young adults, building an emergency fund that covers 3-6 months of living expenses is essential. This ensures that you’re financially secure in case of involuntary job loss, a medical emergency, or any other unexpected life event. Starting with $500 to $1,000 in emergency savings can be a good first goal. And for those carrying high credit card debt, this needs to be paid down ASAP. The amount you’re paying in monthly interest charges to a credit card company could be much better utilized as contributions to your emergency fund.?

Targeted Savings: Planning for What You Want

Not everything you need to save for is an emergency. Many purchases are planned—things like a new laptop for school, your first car, or even a trip with friends. These are items you know you want or need, but you may not be able to afford them all at once.

This is where targeted savings comes in. It’s simply planning ahead and setting money aside for specific purchases. Instead of relying on credit cards or loans (which cost you more in the long run), you save up and pay for things outright. For example, if you know you need a new laptop for college in six months, start saving now. Put aside a small amount each week or month until you reach your goal.

Once you’ve built up your emergency fund, it’s recommended to save an additional 10-15% of your monthly income for these targeted purchases. This habit will help you stay on track financially and ensure you’re ready when the time comes to buy something significant. By delaying gratification while you save, you may find that your desire for the new gadget changes. Sometimes, by the time you’ve saved the necessary funds, you may not even want the item anymore.

The Importance of Both

Emergency savings and targeted savings both serve different purposes, but they’re equally important. Without an emergency fund, unexpected events can set you back financially, forcing you to borrow money or cut into your budget for other essentials. Without targeted savings, you may find yourself always playing catch-up, struggling to afford the things you want or need.

A Real-Life Example

Julie is 19 years old, working part-time while in school, and making about $300 a month. She spends most of that on food, fun, and gas for her car. It feels great to have that freedom, but then she gets hit with a $200 car repair bill. Without emergency savings, that bill is going to wipe out most of her money for the month, leaving her struggling to cover your other expenses. But if she’d saved $20 from each paycheck into an emergency fund, she’d have $120 after six months—enough to cover at least part of the repair.

On the other hand, let’s say you’ve got your eye on a new phone that costs $600. If you start saving $50 each month for it, after 12 months, you’ll have the full amount saved without needing to borrow money or put it on a credit card.

Why It Matters

Learning to save is a key part of financial responsibility. It’s about taking control of your money and planning for your future. By saving for both emergencies and the things you want, you can avoid debt and build good financial habits that will serve you for the rest of your life.

So, the next time you get paid or receive money, think about setting a little aside. It may not seem like much now, but over time, you’ll be thankful you did. After all, it’s not just about saving for the next big purchase—it’s about building a habit that will keep you financially secure and free from the stress of unexpected expenses.