You’re in good company if you’ve ever looked at your savings account and wondered: Am I where I need to be financially? What if there's an emergency or I lose my job? Thankfully, financial experts have given us some direction on this question.
How much should I have in my savings?
The consensus among financial pros is that you should have three to six months’ worth of expenses stored away in your savings account. There’s a lot to keep in mind when figuring out how much money that means for you. Start by looking at how much you spend in a single month. Be sure to factor in the following:
- Housing costs
- Transportation (maintenance, gas, public transport, etc.)
- Insurance (car, medical, life, etc.)
- Utilities, internet, and phone
- Charitable or religious donations
- Pet/animal-related expenses
- Entertainment (music, movies, streaming services, etc.)
- All other necessary expenses not listed
Make sure you’re looking at your net income (take-home pay) rather than your gross income when taking all of the above expenses into consideration.
One you’ve figured out your monthly spending, multiply that number by 3 to see how much you should ideally have saved to take care of yourself for three months if needed (multiply your monthly spending by 4 to calculate for four months of expenses, by 5 for five months, etc.).
I’m still not sure how much I can save. Now what?
If you find that your cost of living is gives you little room to save, the next step is to look at your needs and wants. Determine which expenses are needs (for example: housing, food, insurance, and so on). Also decide which expenses represent your wants. For instance: If you have a subscription for music- or TV-streaming services, see if there are free subscription options available, even if it means you'll have to deal with commercials interrupting your music or TV series. Also take a look to see if you're unnecessarily spending money on restaurants, clothes, and entertainment. If housing costs are a concern for you, weigh the pros and cons of having a roommate or renting out some of your living space.
If you’re still not where you’d like to be after following the above suggestions, know that you’re not alone. The point here is to save as much as you are able to. Once you’ve determined how much you can save from your paychecks, put those funds away in your savings account. Remember not to touch those funds, and let the money add up from there!