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If you’re asking this question, you’re on the right track toward a more secure financial future. Here are some factors to consider when answering the question “how much should I save each month?”
Financial experts generally suggest you put aside twenty percent of your take-home pay each month. But, the ideal savings amount for you depends on several factors. Let's look at two factors that are critical to a successful savings plan.
What Are Your Money Goals?
What are your reasons for saving money? Most of us agree that it's a smart idea to put money aside each month. However, it's crucial to think about what motivates you to make an effort to save cash.
Perhaps you want to save for a down payment on a new home. Maybe you want to take a dream vacation to a distant location. Knowing your goals will help you stay motivated to save money.
It's a good idea to write down your short- and long-term money goals. Remember that your needs and desires will likely change over time. One of the best reasons to save is that it gives you the financial flexibility to pursue new dreams.
Where Are You in Life?
Your age and stage of life
will play an essential role in your savings decisions. Your financial goals change over time, as will your savings. Your expenses, and ability to save money, change as you go through life. Take a look at the following three scenarios to see examples of evolving savings needs.
The typical saver spends much of their twenties settling into adulthood. Financial needs include such things as repaying student loans, establishing a household, and starting a family. The savvy young saver might look ahead to a house down payment and a post-working life.
Start saving for retirement. Aim to put away at least fifteen percent of your pretax income for your golden years. Fidelity
stresses that saving is less challenging if you begin at this stage.
By the time many of us reach middle age, saving is a paramount concern. Not only is retirement looming, but the middle-aged saver
may cover their children's college tuition. Increasingly, many adults in this stage find themselves caring for elderly parents, struggling with the high cost of long-term care.
Don't forget to save for your retirement during your middle years. Paid work will end before you know it, and you'll want a comfortable nest egg to enjoy your later years.
How much should you save a month in your later years? It's easy to forget how crucial a savings account is during your retirement years. However, life is unpredictable, and you'll want cash on hand to handle the unexpected.
Some of the hard-to-predict expenses
that pop up in retirement include
- Home maintenance
- Health care
- Dental emergencies
- Long-term care
- Aid to family members
Maintaining a savings account makes paying for your surprise expenses much more manageable.
Your savings needs will vary throughout your lifetime. A financial advisor can help you to understand how much you should save at different stages of life.
How Should I Save?
Once you figure out a workable savings target, you'll need a savings account
. There are many different types of savings options available today. To begin, you will want one of these standard savings account options.
Traditional Savings Account
You're undoubtedly familiar with the traditional savings account found at banks and credit unions. These accounts pay interest or dividends based on the account's balance. Interest rates rely on the type of account as well as the financial institution.
A big perk of housing cash in a traditional account is that you can access the money when needed. It's vital to keep some cash on hand for emergencies, and this type of account pays you dividends while still giving you ready access to your funds.
Money Market Account
Banks and credit unions sometimes offer higher interest rates in money market accounts
. This type of savings account is also federally insured. Cash stored in a money market account
is also available when you need it.
One thing to know about many money market accounts is that they have a higher minimum balance than a traditional savings account.
Certificates of Deposit
The best interest rates usually come in certificates of deposit (CD) accounts. This kind of savings option differs from the other options in that your money isn't available for a specific period. The length of time generally varies from a few months to years.
Certificates of deposit aren't a great option if you might need the money early. However, you'll make more money through dividends if you can afford to place some of your savings in a CD.
The answer to "how much should I save each month" is a personal choice based in part on your stage of life. Carefully consider your current and future financial needs and goals when you set a savings number.
Contents of this blog article are intended to provide you with a general understanding of the subject matter. However, it is not intended to provide legal, accounting, or other professional advice and should not be relied on as such. Information may have changed since the publication date.