Maintaining sufficient savings is crucial for financial security, providing a safety net for unexpected expenses, and a pathway to achieving your financial goals. For many, the question of “How much should I have in savings?” can vary depending on your unique circumstances. There’s no hard number or one-size-fits-all answer, but there are a few key considerations that may help you calculate what that number might be for you.
Understand Your Current Finances
You first need a clear understanding of your financial goals and current circumstances. Factors such as income, expenses, debt obligations, and lifestyle can influence how much you have in savings. The next step is to establish where you are financially, in order to come up with a savings plan. How much money is coming in versus going out? Understanding your personal finances and tracking expenses can help you create a successful budget.
Make A Budget with Saving as A Priority
The 50/30/20 budget, for instance, is a strategy that suggests allocating 50% of your income to necessities, 30% to personal spending, and 20% to savings.
Your Total Savings Goal
The standard savings recommendation is to have an emergency fund that can cover three to six months’ worth of basic expenses. When it comes to setting your target, the right number for you will consider your expenses and how much you’re able to save consistently. Say your core monthly expenses total about $5,000. Having enough saved to cover three to six months' worth of expenses means you’ll need to have between $15,000 and $30,000 saved. If putting away that amount of money is daunting, try not to focus on the end amount. Saving money consistently, regardless of amount, is how you can build financial security.
Growing Your Savings
Want to pad your savings account? Use these strategies to grow your savings:
- Automate savings: Use automatic transfers to shift funds from your paycheck to your savings account, which can reduce the temptation to spend instead of save.
- Set achievable goals: Consider how much you want to save and how much you'll need to put away monthly to reach that amount.
- Boost your income: Asking for a raise, getting a new higher-paying job, or taking on a side hustle can help you funnel more income to savings.
- Manage debt: If debt is getting in the way of your savings goals, prioritize paying off high-interest debt with lower-interest alternatives such as a debt consolidation loan or balance transfer credit card.
A sound savings cushion can provide numerous benefits in terms of security, financial flexibility, and peace of mind. The recommended amount of money to have in savings is different for each person. But as long as you make deposits regularly into an account that earns an attractive interest rate, you can build a savings balance that is right for you.