How much should I save for emergency and retirement savings?
There’s no one-size-fits-all answer to the question of how much money for putting in your savings account. The standard recommendation is 3-6 months’ worth of basic expenses but the balance varies based on your lifestyle.
If socking away this kind of cash’s big amount looks scary, you need to know that with a plan in place, it is doable. Here are how to find out what your target balance should be and ways to rapidly grow your savings.
How Much Should I Have in My Savings?
Before we talk about savings, we get something else out of the way first: debt. If you have $8,000 in a savings account but $12,000 in credit card debt, do you know what you have? A negative net worth of -$4,000. It is sad but true if you are $12k in debt, that 8 grand sitting in your savings account is not doing you any favors.
And heck, it is not even yours either. As long as you owe money to somebody else, that beefed-up savings you are so proud of do not belong to you. Then how much I should have in my savings?
If you have debt head, you will want to take the savings down to $1,000 we know this as a starter emergency fund, and throw the remaining money at your debt. We will not sugarcoat it. Seeing a lump sum will get yanked out of your savings. This is what debt will do. It will steal from your future and will keep you stuck longer paying for the past. Do not continue to stay in debt, making at least payments and racking up huge amounts of interest when you have the money to move the needle. The fast you pay off your debt, the less interest you will have to pay in the long run, and then you will be free to rebuild savings.
How Much Money I Should Keep in My Emergency Savings?
Your emergency savings account is going to appear different depending on your income, your condition, and where you are at in the Baby Steps. If you are getting started with Baby Step one, the answer is easy: You need $1,000 in a starter emergency fund before you move on to Baby Step two (paying off all debt except the home).
Nope, you cannot get by with saving $800. And no, you do not want to bump it up to $2,500 before you move on to begin paying off debt. 1,000 George Washington’s that is all. The exception here’s if your income is under $20,000 a year. If that is the case, all you require is $500 in emergency funds. Once your debt-free and ready to begin Baby Step 3, you will concentrate on saving your fully-funded emergency fund.
This’s where you bring out the large guns. The goal here is to save up enough money to cover three to 6 months’ worth of expenses.
Now, remember that this number is going to seem different for everybody. The easy way to figure it out is to ask that If I was out of work, then how much money it will take to get me through 3 to 6 months? Think of things like the essential, regular expenses you have (transportation, food, housing, and utilities, etc.), as well as never the $400 you did like to spend on a free-for-all shopping spree that does not count.
One final note: Do not keep your emergency fund in your savings account. Yes, you need to be capable of access your money rapidly and simply, but not too simple. The great thing to do is put that emergency fund in a money market account. Some of them will give you a debit card and checks for utilizing that way you may get to it when you want to (keeping it liquid). And do not worry about how much interest the account gives your emergency fund- this isn’t an investment. You do not want for being worried about the rate of return here. That money is not there to make you money. It is there to act as a safety net for covering your back when an emergency hits.
How Much Money I Should Have in My Retirement Savings?
Before we tackle this one, a fast reminder: Do not contribute to your retirement savings unless you are out of debt. All right, now let us talk about what you are asking here: How much should I be saving for retirement? Good question! We suggest putting away 15 percent of your household income into retirement savings.
What does that seem like in real life? If your household income is $80,000, then you want to be putting $12,000 toward your retirement savings each year. So, how you will do that? First things first max out your company 401(k) and ensure you are taking benefit of the full company match. You may invest the rest into Roth IRAs. How much should you keep in your retirement savings, you ask? The limit of the sky on this one! The more you save now, the more money you are going to have when you hit retirement.
To start saving, your 20s are the best time. It is okay to begin small; the essential part is that you are thinking about your financial future. As you progress in your career and become further financially stable, you may increase your contributions. Paying off high-interest student debt as well as automating your savings so you squirrel away a piece of every paycheck are better places to start.
Budgeting and then saving is the 1st step. But then you have to ensure you are appropriately prioritizing your savings goals. Consider an emergency fund for being some important savings goal. Saving for this during good times is going to help you during an inevitable bad time. There is no way to predict the price of that unplanned life event.
Want to plan for an awesome retirement and get your emergency savings on track?
Talk to our wealth management experts today! The YMA Wealth Management Group has the team of experts you need to get your savings on track for a successful future. We want to help you get there!
Pick up the phone today and give us a call: 1-800-381-9206
