If you have spent any time reading personal finance blogs then you already know the single most important rule to building wealth and getting out of debt – spend less money than you earn. While this is a relatively simple concept, the problem most people have with it is trying to determine what this looks like on a day to day basis.

Is saving money some form of arcane, self-induced punishment; a passive activity that is painful yet somehow necessary? Or is it something more?

Last year, we spent a small fortune on medical bills. It seemed as if every day another doctor sent us an invoice for something they supposedly read, did, or reviewed. Seriously! There were bills to take x-rays, bills to read the x-rays, and bills to review the notes that the doctor made on the x-rays. It is enough to drive you insane. But I digress.

As these bills started to pile up, I started to question my overall philosophy on saving money. Up until then, saving money was something we did to protect us against emergencies. We built up our tiny emergency fund and felt pretty good about doing so. If something happened, after all, $1,000 should take care of it, right?

While it is certainly true that a grand will take care of the minor emergencies in life, it does nothing to protect you against anything larger than a scratch. A few nights in the hospital or a blown engine can completely derail your finances for months, if not years. After the year we had, my wife and I have started to think about saving money in a whole new light.

Why We Are Saving Money

If we really want to achieve our goals, it is crucial that we start actively saving money as quickly as possible. Saving money has to be something that we pursue; not something that just happens to us. Since I am absolutely sure that our money needs specific direction, here is what we are saving for:

Emergency Fund – Dave Ramsey suggests that people start with $1,000. Based on our experience, this is not enough. With that being said, our goal is to start with $5,000. This will, hopefully, help buffer against another bad year.

New Car Fund – We have two cars; a 2000 Volkswagen and a 2004 Explorer. As these cars are getting older, I have noticed that our repairs and maintenance expenses have started to creep up. It is only a matter of time before one of them dies a terrible death and we will need another car. We definitely won’t be buying a new car, but we will need something.

Debt Reduction – After putting away enough money for emergencies and a new-to-us car, we will start tackling our debt. While I hate it all, the debt that really irks me the most is my student loan. I seriously wish someone would have sat down with me and explained that I did not need to borrow the maximum amount allowed.

While most people will agree that saving money is important, it is now the foundation to building our wealth. It will take a lot of effort going forward but I know it will definitely be worth it!

Why are you saving money? How are you actively involved with managing your cash?