Final answer:
Option c) $40 for emergency fund, $30 for vacation, $30 for retirement is a strategic choice as it balances the need for immediate funds, long-term retirement savings, and the psychologically important aspect of enjoying life now via vacations.
Step-by-step explanation:
If you have $100 per month to save and you're considering how to distribute this money among your three savings goals of an emergency fund, vacation, and retirement, a balanced approach might be the best option. This is especially true considering the importance of financial planning and the benefits of compound interest on savings accumulated over time.
Option c) $40 for emergency fund, $30 for vacation, $30 for retirement appears to be a strategic choice. It allocates a substantial portion to the emergency fund, which is crucial according to financial experts who recommend three to six months' worth of income saved for unexpected events. At the same time, allocating money towards a vacation allows for mental health breaks and immediate life enjoyment. Lastly, the retirement savings benefit from the power of compound interest, which can substantially increase the value of your savings over the long term, as illustrated by the example of a $3,000 investment growing to $44,923 in 40 years at a 7% annual rate of return.
Considering the suggested approach of saving around 15% of your income for retirement, option c) supports this goal while also providing immediate utility and security with the other allocations. This approach balances current needs with future goals and takes into account both unforeseen challenges and the importance of enjoying life's moments now.