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Why and how to save

There are a number of reasons why you should save money. Having savings can help you be prepared for unexpected expenses, work towards long-term goals, and reduce stress by providing a sense of financial security. To save, it's important to budget and identify areas where you can cut expenses. Automating your savings through direct deposit or apps can help make the process easier, and keeping your savings in a separate account can help you resist the temptation to spend it. Created by Sal Khan.

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Video transcript

- 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 interruption to your income or unexpected costs that happen from your car breaking down, or maybe medical expenses, or you might wanna 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. And what I do personally, well, I do a few things. First of all, 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. And the way that you save 20% is spend no more than 50% on needs, 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 set aside some money. Every paycheck, could be every week, every other week, it could be every month. That's just a little bit harder to access. Maybe your money from your pay gets deposited into your checking account, either automatically, or you deposit a check. Well, maybe every month. And there's ways that you can automate this. You make a transfer from your checking account to your savings account. Makes it a little bit harder for that money to be accessed and you will only access that money. You tell yourself, "Self, I will only access that money in an actual rainy day." The other thing to remind yourself is 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 $5,200 over the course of a year which is going to amount to $52,000 over the course of 10 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.