Maintaining a savings balance will go a long way toward peace of mind and security. However, data shows that only 39% of American households have enough saved to cover an unexpected expense of $1,000 or more. Savings are necessary for emergencies, but they can also help accomplish long term financial goals such as college funds and retirement or even be set aside for fun activities like travel and vacations. While the benefits of saving are clear, the steps toward reaching your financial goals are not always so straightforward. Here’s how to get started.
How Much of My Income Should I Save?
While this can be a daunting question, a solid guideline is to save 20% of your after-tax income (your “take-home” income). But where does this percentage come from? The 20% is a portion of the popular 20/50/30 formula, where 20% of income goes toward savings, 50% toward needs/expenses, and 30% towards wants (non-essentials). Each person’s situation is different, but the 20% of income is an excellent starting point. Figure out your “take-home” income for one month, factor 20% of the total, and there you have it: your monthly savings goal!
How Much Should I Save for Retirement?
The best time to look toward retirement is now. No matter what your age is, the sooner you commit to saving, the better off you’ll be. Experts indicate a benchmark of 10-15% of take-home income should go toward retirement. This 10-15% factors into the total 20% savings goal mentioned earlier.
Do a little digging! Find out what your employer offers regarding retirement accounts and matching programs. Use a paystub to determine how much of your income was contributed toward 401(K) or other retirement plans and subtract that from your 20% savings goal.
How Much Money Should I Have in my Savings Account?
Savings accounts offer an important bucket of money for needs that may come up in the short term. This amount should be liquid and accessible, making it an emergency fund that provides peace of mind for life’s unknowns. Experts point toward a reserve of six to eight months of expenses as a healthy backup fund.
The best way to accomplish this goal is to start by accumulating three months of expenses with your 20% monthly savings going directly into an accessible account. Once this safety net is established, divert more of that 20% toward your long-term savings goals and continue building your savings account more slowly.
Honor Bank Can Help You Achieve Your Savings Goals
So, you’re starting to be savings savvy! Let Honor Bank help you turn those goals into realities. Offering a variety of savings accounts, Honor Bank will work with you to help you reach the financial security you deserve. Contact us today to get started.
