Go through your checkbook, indicate which months these expenses are due, add the total and divide by 12. This tells you how much of each month s paycheck needs to go into savings to cover irregular expenses. One last category of savings is for future purchases. As you begin to have more income than debt, it is to your advantage to save for future purchases rather than buying with credit. As you can, it s important to increase your savings to cover new purchases.
Many people think that buying insurance is throwing money away.
They operate under the illusion of control, which means they think the odds of a fire or flood affecting them are much lower than they really are. The purpose of insurance is to pay for losses that you could not cover from your income and savings. This generally means having homeowner s or renter s insurance to cover loss due to fire, flood, wind or accidents caused by you or a family member. Auto insurance must protect you against potentially large expenses due to you causing injury to others or damage to their vehicles. Life and disability insurance provide income if a breadwinner dies or suffers a disability and cannot provide needed income.