How Much Should You Have in Savings?
While it might be the most common piece of financial advice around, it really is important to save money. However, no matter how many times we hear this, we're rarely told how to save money and we're often left asking questions like, "how much should you have in savings?"
Here's how you can save now in order to achieve financial wellness later:
Determine How Much You Should Have in Savings
Everyone has different needs, wants, and goals. That said, the amount you should have in savings might look a little different from your friend or your neighbor. But in general, you can get started by using a few rules of thumb.
- Save for Emergencies: Everyone should have cash set aside to cover emergencies or unexpected expenses that don't fit into your normal budget. What would you do if you lost your job, or landed in the hospital? An emergency fund can help keep your finances in order while you get back on your feet. At a bare minimum, aim to keep $1,000 in a savings account you can use for emergencies. Then, work on building that up to approximately six months of your take-home pay. The more unstable your income, the more you'll want to save in cash to protect you from potential gaps in earnings.
- Build a Cash Buffer: In addition to keeping money in a savings account, you probably want to keep a little extra cash in your checking account. The point of this money is to make sure there's a little more than what you know you'll spend each month so that you can avoid an accidental overdraft to your account.
- Set Aside 10 Percent of Your Income: When it comes to growing your savings, most experts suggest saving at least 10 percent of your income, and earmarking that money for your future. If you can save more, that's even better; more savings equates to more financial security.
- Set up Automatic Savings: Look into savings tools like KeyBank's EasyUpSM, which transfers $1 to your savings every time you use your KeyBank debit card. Those small amounts can make a big impact over time.
Why is this so important? Eventually, you won't be able to work in order to earn an income. But you'll still have expenses you need to pay. Saving 10 to 20 percent of your income today means having the money you'll need to fund your lifestyle in the future, when you may not be able to rely on a paycheck.
The Right Savings Strategy for You
Beyond these baselines, what's right for you depends on your ability to save and why you want to save money in the first place. You might feel motivated to check the boxes above, but what if you simply can't save? What if you don't have any money left over at the end of the month after paying your bills?
You may need to cut back on your expenses to make room for savings. But sometimes, there's just nothing left to cut back on. If you find yourself in this position, it's time to look at how you can increase your income and earn more money. You could negotiate for a raise, start looking for a higher-paying position, consider freelancing or consulting in your spare time, or pick up part-time work. At some point, you may need to set savings goals that are specific to you.