Building Your Savings Account: How Much Should You Have Saved Up?
There’s a heavy focus on the importance of building your savings account. An increasing number of people are realizing how necessary it is to have a “rainy day fund” to fall back on. Businesses, for example, know that they need a 10% “rainy day” or contingency fund that will cover 10% of their annual income. What does that look like for an individual? While you can always add more to your savings account, there are certain minimum amounts that you should always have handy.
Your Emergency Fund
Your emergency fund is the immediate resource for something you must pay for right now. This fund is designed to help you pay for unexpected car repairs, to cover the cost of unanticipated medical bills, or to handle other emergencies. What goes in your emergency fund? In general, you’ll need at least $1,000 that you can access quickly if needed.
Your Long-Term Savings
Long-term savings allow you to handle the curve balls that life throws your way. Sudden job loss, natural disasters, and other unexpected expenses can all take a quick toll on your finances. Knowing that you have a solid savings account in place will ease some of the stress associated with this event and make it easier for you to take care of yourself and your family. Ideally, you want to have at least six months’ worth of expenses tucked away in your savings account. Calculate:
- How much you spend on regular bills: your mortgage, your car payment, your utilities, and any other bills that you have to pay every month.
- About how much you typically spend on food and gas in a given month.
- A little wiggle room to allow for emergencies during that time.
You can also do an evaluation of how much you actually spend over a one-month or two-month period, and then adapt your savings account to be sure that it will support your family for at least six months if needed.
Tips on Building Your Savings Account
Is building your savings account a challenge? Try some of these key tips.
- Set aside a little at the first of every paycheck. After a while, you won't miss it!
- Don’t link your savings account to your checking account. This makes it too easy to withdraw “a little here and there” when you shouldn't.
- Get in the habit of leaving your savings account alone. This money is for genuine emergencies, not “I need a new outfit for a big event” emergencies. Instead, save ahead for things you know you’re going to want or need.
- Develop a budget. This will let you know how much money you really have to play with each month.
- Track your spending. You may be surprised by how much money you actually spend in certain areas of your life.
Are you struggling to build your savings account? Do you need help managing your money? Contact us today to learn more about how we can help.