Pay Yourself First
by Kathleen Sindell from Investing Online for Dummies
The beginning of personal wealth is the accumulation of capital that you can use for investing. This capital often begins with savings and expands into other types of more profitable investments. Savings are the beginning of your capital accumulation. Families need a regular savings program that's between 5 and 10 percent of take-home pay per month. Some people even manage to put away 15 percent. Getting into a regular rhythm with saving is important.
Additionally, individuals and families need emergency funds. Folks with fluctuating income, few job benefits, and little job security may need a larger emergency fund. Families with two wage earners may need a smaller emergency fund.
A general rule is to have three to six months of take-home pay in a savings account (or a near cash account similar to a market fund with check writing privileges) for emergencies. If you don't have an emergency fund, you need to increase your savings. Payroll deduction plans into a savings account or money market fund are often the most painless way to achieve the best results. On the other hand, if you've been saving a surplus, you may want to consider using these funds for investing.
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