From childhood to adulthood, surely all of us have heard the advice: “Need to save money!” from parents, teachers, relatives, close siblings. Of course, saving is better than not saving at all (every penny is worth it, right?). But without a reason, a specific purpose, it is very difficult to save thoroughly, continuously, and effectively over a long period of time. This is also the reason why most of us, despite growing up with the advice of saving, fail to maintain this habit as adults. In addition, because each purpose of saving money is associated with its own methods to not only retain money but also make it grow more. Therefore, if we do not start with a specific purpose, we cannot put each penny of savings into the true value it deserves.

In this article, I will introduce 7 common money saving purposes and reasonable saving methods for each purpose:

1. Save Money For Emergencies

An Emergency Fund is an amount of money that everyone needs to have, estimated to be 3-6 months’ worth of essential living expenses (e.g. rent, utilities, food, transportation, etc.). Depending on your personal or family expenses, each individual will determine the right amount for their emergency fund. As its name suggests, this fund should be kept separate and untouched, unless a real emergency arises. What constitutes an “emergency”? Unforeseen events such as job loss, accidents, hospitalization, car breakdowns, or sudden family crises are considered emergencies. In such sudden and stressful situations, this savings fund acts as a safety net, helping us avoid financial shocks and buying us time to regain stability. Once things return to normal, we should replenish the emergency fund. On the other hand, expenses that can be anticipated, such as buying new clothes, preparing for Tet, suddenly wanting a new phone, or feeling like taking an overseas trip, are not considered emergencies (see sections 3 and 4 below).

Fundamentally, the method of saving for an emergency fund is quite simple. You just need to set aside a portion of your income (the percentage depends on how quickly you want to accumulate the emergency fund, the more you set aside each month, the shorter the time it takes to fill up the fund) into a savings account. This savings account should be easily accessible (such as cash or money in a bank account under your name) so that when you encounter difficulties, you can withdraw it immediately. However, it should not be too easily accessible to the point where you can impulsively withdraw money to buy something unplanned. Therefore, you may consider keeping it separate or transferring it to a different bank or account to avoid the temptation of using it for non-essential expenses. This fund should not be invested or placed in a hard-to-access location, because when an emergency arises, you need to be able to withdraw the money quickly without incurring additional economic consequences.

2. Save Money To Pay Debt

If you currently don’t have any debt, you’re truly lucky! Many young people have their parents take care of their education expenses, living expenses, housing, car purchases, and career establishment… without realizing that to have those basic foundations, less fortunate people had to struggle to make ends meet by borrowing money. If you don’t have to pay off debts, be grateful for what you have and those who have given you a debt-free life today, and try your best to never get entangled in debt. If you’re facing a debt, don’t be afraid! Start confronting your debt head-on and make a plan to resolve it thoroughly from today.

Most personal finance documents affirm that saving money to pay off debt is one of the most difficult things to do! It’s not difficult because the debt repayment process is complex, but because to pay off debt, the saver must make a long-term commitment, accept temporary sacrifices, and delay gratification, so that later, after the debt is paid off, they can achieve more. Therefore, saving money to pay off debt is not just a mathematical calculation, but a psychological, behavioral, and personal discipline struggle that requires great determination. There are many books, articles, and online channels dedicated to debt repayment, so this article will not delve deeper into this topic. However, basically, there are 2 methods to pay off debt:

• Paying off debts from smallest to largest, regardless of interest rate (“Debt Snowball”): Although this method may not be the most efficient from a mathematical perspective (since it prioritizes paying off smaller debts with lower interest rates first, while larger debts with higher interest rates are paid off later), it has been proven through numerous studies to be effective in terms of behavior and psychology for individuals actively paying off debt. As mentioned, paying off debt is difficult because it requires perseverance, self-discipline, and sacrificing short-term pleasures. Therefore, if you prioritize paying off larger debts first, you may feel overwhelmed and discouraged because you’re not seeing progress, leading to feelings of frustration, boredom, and a lack of motivation to continue paying off debt. Paying off debts from smallest to largest helps to build confidence, as each small victory gives you a sense of accomplishment and motivation to continue tackling the next debt. If you’re feeling exhausted from debt and frequently losing motivation to pay it off, consider using this method.
• Paying off debts from the one with the highest interest rate to the one with the lowest interest rate (“Debt Avalanche”). This is the most mathematically efficient approach. That is, you attack the debt with the highest interest rate, cutting down the interest as quickly as possible, so that more of your money goes towards paying off the principal. After paying off the largest debt (which may take the most time and energy), the smaller debts that follow will be easier to pay off. This approach is very suitable for those who have strong willpower, good self-control, and have already developed effective money management habits.

3. Save Money For Small Pre-planted Spendings

These small expenses can vary depending on individual needs and financial capabilities. But basically, they can be a piece of clothing you really like but haven’t had enough money to buy, a concert ticket you need to save up for, a personal computer, a short trip with friends… These are also the kinds of expenses that we tend to “splurge” on, buying impulsively without making sure we have enough cash. Therefore, actively saving money is also a way to give ourselves time to think about whether the expense is truly worth it. Having a habit of saving money for small expenses can create good behavior for managing our finances.

To start saving money for these small expenses, you need to plan for them in your monthly “budget” (see how to create a budget here). If your budget is balanced and you have enough cash to spend, you can consider spending on this item. If you don’t have enough money in your budget, set aside money specifically for this item and save until you have enough to spend. For expenses that are difficult to estimate (e.g. a trip), try to research thoroughly, gather enough information to estimate the cost, and to be safe, budget a bit higher in case you need extra money.

4. Save Money For Big Planned Spendings

These large expenses are typically related to housing, transportation (motorcycles, cars), children’s education, study abroad, long-term travel… or all the expenses that require relatively long-term savings, and may require installment payments (or, in other words, “borrowing” to pay gradually) to own. Of course, everyone wants to have enough cash before paying for these expenses, but waiting too long can also cause us to miss good opportunities and end up paying more to get what we need (especially with real estate). Therefore, saving money for these large expenses or having a plan to pay them off quickly is extremely important to achieve our goals without getting too bogged down in debt.

To save for these expenses, first, we need to make a clear distinction between what we “need” and what we “want”. As financial expert Suze Orman often says: “live below your means, but within your needs” — which means living below our financial capabilities, but within the scope of our essential needs. This means that if our financial capabilities allow us to buy a 1,000 square meter house, for example, but our essential needs only require 700 square meters, then we should only buy a 700 square meter house. Similarly, if we can reduce our extreme desires, such as a 1 billion VND car or a 100 million VND trip, to a more necessary level, such as a 500 million VND car or a 50 million VND trip, which still meets our personal needs, then we should stop at this lower level of spending. The remaining money will help us pay for the incidental costs of the large expense and ensure that we don’t “overspend” due to a momentary impulse.

After determining the reasonable and necessary amount for these large expenses, we start saving by allocating a portion of our budget each month. We save until we have enough money. If you need to make changes (sell a house, sell a car, sell assets…) before making a large purchase, it’s a good idea to use this savings period to gradually carry out the buying and selling process. If the amount needed is too large and requires installment payments, then save up for the down payment first. After saving up for the down payment, calculate the monthly payment amount along with the interest rate (ideally below 25% of your income), and determine the repayment period (the shorter the better). Once you’ve decided to make a purchase with installment payments, include the debt repayment in your budget and follow the debt repayment steps (see section 2) to pay off the debt in full.

5. Save Money To Invest

Saving to invest is a way to make your money continue to earn more money. The two words “investment” may sound grandiose, but in reality, investing today is not that difficult. You can invest long-term by buying stocks, bonds (note the emphasis on “long-term” rather than “speculative” buying and selling according to market trends), and over time, your small investments in stable sources will yield significant returns. You can also invest by contributing capital to others’ business models or starting your own business. “Business” may sound grandiose, but in reality, you can start small, such as earning extra income through online sales, opening an English language center at home, taking on translation work, or offering consulting services… which is also a form of small-scale entrepreneurship. When you have capital, confidence, and more ideas, you can expand your business or invest in multiple fields.

Investing and doing business require good knowledge to be effective, and the investment environment varies from place to place. Therefore, this article will not delve into specific investment forms. However, the best investment for this field is investing in oneself. Reading more books about investing, personal finance management, learning from those who have gone before, applying knowledge to real-life situations, and constantly seeking opportunities to put one’s money in the right place… is the best way to take control, protect oneself, and achieve financial prosperity. Investing in oneself will also help avoid economic scams, get-rich-quick schemes, and enable one to approach investing and business with a clear head and solid knowledge.

6. Save Money For “retirement”

The reason why “retirement” is in quotes is because the concept of retirement has changed significantly. For many older individuals, retirement is not necessarily the end of work, but rather a time to enjoy their grandchildren, pursue hobbies, and do things they didn’t have the opportunity to do earlier. Some even “start a business” in retirement to earn extra income outside of their pension. However, for young people who are not yet of retirement age, thinking about saving for “retirement” is also very important (perhaps even more important than for older individuals) because you have more time to save and plan for the future. For young people, if you can solve the “retirement” equation, you may even be able to quit your current job early and start doing what you want to do now, without having to wait until you’re 55 or 60 years old. The trend of “early retirement” among young people has been gaining momentum in recent years in developed countries, attracting thousands of people who save for daily expenses, invest in retirement funds, and plan for a future where they don’t have to do work they’re no longer passionate about.

However, whether you’re older or still young, whether you want to work until retirement age or retire early, saving for retirement is extremely necessary. In the US, where I live, many companies and organizations offer retirement funds in the form of investments (401K or IRA) that allow employees to deduct a portion of their monthly salary into these funds and automatically invest in stable bonds and stocks until retirement age. This is a great way to encourage people who are still working to save for their future, to let their money grow, and to know how much they’ll have when they retire - rather than waiting until retirement and being surprised by their monthly pension.

However, you don’t have to wait for changes to the national retirement system to change your future. Start as soon as possible by setting aside at least 10% of your income into a retirement investment fund. Consider this as a long-term savings investment (like in section 5) but try to find a stable option with a reasonable return, not too high but stable, that you can contribute to over a long period of time. This way, when you retire, you’ll have a significant amount to ensure your future. There are many other ways to save and invest for retirement, but within the scope of this article, I just hope you can start by thinking about your future, understanding the retirement system, and making a plan for yourself before it’s too late.

7. Save Money To Give, Donate, Charity

The last but not least important category is the money for gifts, charity, and good deeds. In life, we need to give a lot, from daily visits and gifts to weddings, funerals, and monthly support for our parents; and especially, to help those who are less fortunate. If you’re always lacking, you might think that you’ll never have enough money to give to anyone and every time you have to give, you’ll feel uncomfortable. However, many financial independence resources suggest that generosity can bring you more opportunities to earn money. Because giving is receiving, if you can give with a joyful heart, you’ll be more confident, feel more fulfilled, and have a more positive outlook on life. From there, you’ll attract more people, find better opportunities, and build more effective relationships. Therefore, many financial experts recommend setting aside 10% of your monthly income for gifts, charity, and good deeds. Consider this as a necessary expense, not just for others, but also for yourself.

Above are 7 common savings goals that I have observed. However, depending on individual needs and circumstances, you may have different goals and modify the methods mentioned above to best suit your situation. Moreover, you may be wondering: Can I save money for multiple goals at the same time? This is a debatable question because each person has a different perspective and economic condition, as well as different savings needs. If you ask for my opinion, the answer would be both “No” and “Yes”. If you don’t have enough emergency funds (3-6 months’ worth) and haven’t paid off your debts, I think you shouldn’t take on too many goals at once, but rather focus on the first goal of accumulating enough emergency funds and then focus on paying off your debts. Concentrating on these two difficult goals will help you achieve them, and once you’ve developed an effective habit of using and saving money, you can move on to new goals.

In case you already have enough emergency funds and no debts, I think you can aim for multiple goals simultaneously, such as saving for investment, retirement, and large expenses… However, combining these different goals requires careful consideration and meticulous calculation to avoid conflicting interests and maintain long-term savings.

I hope this article helps you on your path to financial independence!