Saving money is an essential part of your financial health. But it’s a part that many Americans and Canadians are neglecting, experts say. One in five Americans aren’t putting aside any of the money that they earn — they’re spending all of it. That’s a huge problem for many reasons.

First, saving money is the key to enjoying a comfortable retirement; without savings (that is, savings that you have invested and are using to grow your wealth), you’ll have to keep working and working until you’re no longer able to. Second, failing to save money means that you’ll never be able to save up for big purchases, whether those purchases be the car of your dreams or our own home (owning a home tends to be more financially health than renting in the long term). Finally, and perhaps most importantly, saving money gives you a cushion in the form of an “emergency fund.” Without an emergency fund, any sudden expense will leave you scrambling for money, which may force you to take on debt that can further limit your ability to save — exacerbating all of the problems mentioned.

Below is a guide to staying afloat, fighting your way back to financial security, and creating wealth going forward.

Recovering from financial disaster

When you’re hit with a big expense, you may not have any money to deal with it. That’s the case for many, studies say: For instance, only a quarter of Canadians have a “rainy day” or emergency fund. So what can you do?

Don’t put off paying bills, because that will hurt your credit. Depending on the situation, you may be better off getting a loan, explain the experts at Eastern Loans. This will buy you some time and some breathing room to get back on your feet.

But you need to make the most of this opportunity. Prioritize paying off your loans and focus on ditching that debt. If you let your debt languish, it will only grow, so attack it with urgency. Debt is a tool of the financially savvy, so use it wisely and make sure that it helps you instead of hurting you.

In extreme cases, you may need to consult with an attorney about bankruptcy and other options. But if you’re able to cover your expenses and start breaking even again, it’s time for the next step: saving money.

Setting a household budget

The most important thing to do if you want to save money is to set a household budget. A budget will let you take a look at your entire financial picture at once. You’ll examine how much you’re making, how much you’re spending on things you can’t change (like rent or mortgage payments, which are tough to alter unless you’re willing to refinance a loan or move out of your place), how much you’re spending on essentials (like groceries, which you might be able to save money on here and there but generally have to buy), and how much you’re spending on nonessentials (like dinners out, drinks with friends, and video games).

This is your chance to target wasteful spending. Take your smartphone, for instance: Smartphones are so common that even many of the most financially desperate people in the United States and Canada have them. That’s perfectly understandable), but you need to be careful not to overextend yourself. Be mindful of the price of your smartphone, even if your provider is letting you pay in installments. And when you can, fix your old phone to avoid buying a new one. The cost to replace an iPhone XS screen is a lot less than the cost of a brand-new phone, so keep your old device for as long as you possibly can to save money.

After carving out space for the essentials, it’s time to take a good hard look at your discretionary spending. You should set up your budget such that you are actively saving money, not just breaking even. If you can, you should save 10 to (ideally) 20 percent of your salary.

Notice that we didn’t say anything about your income — while it’s obviously easier to save on higher incomes, most of us could be better about saving what we earn, regardless of how much that is. Even wealthy people fail to save sometimes, and that’s because they’re paying too much attention to what they earn and not enough to what they save.

Managing your savings

Once you’re saving money, your first priority should be to build up an emergency fund. This is the money that helps you avoid late payments, debt, and other things that can hurt your finances and your credit rating. Aim to cover at least a couple months of expenses. If you have a less-than-steady income or a family to provide for, you may want to have even more than that.

With your emergency fund taken care of, it’s time to bulk up your savings and your retirement fund. Slow and steady is just fine as a retirement savings strategy — in fact, thanks to compound interest, it’s extremely effective. Put your retirement fund somewhere where it can grow through interest, but don’t put it at too much risk. Broad index funds are a good example.

Saving money is easier said than done, of course, especially if you’re behind on your bills. But taking charge of your financial future is something that you must do if you want to enjoy a comfortable future and retirement, so try your best to get organized and attack your financial problems.

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