Why and how to save | Budgeting & saving | Financial Literacy | Khan Academy

So I'm guessing that you already have a sense that saving money is a good idea. It's good for a rainy day; that's why we have an emergency fund. There might be unexpected interruptions to your income or unexpected costs that happen from your car breaking down, or maybe medical expenses. Or you might want to save for something like retirement or a down payment on a house.

But the next question is, how do you actually go about saving the money? We all know it's sometimes a little bit more fun to spend money than to save money. What I do personally, well, I do a few things. First of all, I try to set a budget, and we talk about that in depth in other videos. Think about what your after-tax income is every month, and then think about your needs, your wants, and then how much you save.

We've talked about the 50-30-20 rule, which is just a rule of thumb: try to at least save 20% of your money. The way that you save 20% is spend no more than 50% on needs, and no more than 30% on wants. Now obviously, if you can save more than 20% of your money, even better! But then, how do you do that?

One thing is to set aside some money every paycheck. It could be every week, every other week, or it could be every month; that's just a little bit harder to access. Maybe your money gets deposited from your pay into your checking account, either automatically or you deposit a check. Well, maybe every month, and there are ways that you can automate this. You make a transfer from your checking account to your savings account.

This makes it a little bit harder for that money to be accessed, and you will only access that money if you tell yourself, “I will only access that money in an actual rainy day.” The other thing to remind yourself is that a little bit every day, or every week, or every month can add up to a lot. It might feel like, “Hey, if I save only a hundred dollars this week, what's the big deal? Maybe I should just spend it.”

But remember, if you save a hundred dollars per week, that's going to amount to five thousand two hundred dollars over the course of a year, which is going to amount to fifty-two thousand dollars over the course of ten years. And that's before we even think about how you could invest it and even grow it above and beyond that. So even that hundred dollars a week goes a long, long, long way to building your wealth and obviously protecting you and your family from those rainy days, from those emergencies.