How Much Should I Be Saving?
We all know that saving money is important. But how do you know how much money you should be saving? Is $50 out of each paycheck sufficient? Should you shoot for 20% of your income? There are several different guidelines that you could go by, but there is no one right answer. What’s most important when it comes to saving is that you are building a savings plan that works for you and sticking to it – and earning interest to help you save even more! Robins Financial offers savings account options that help you kick-start your savings and meet your goals.
Here are a few of the most common savings guidelines and other savings tips to help you get started on your saving journey and help you determine a savings plan that works for you.
The 50/30/20 Rule
This is one of the most well-known savings guidelines. The 50/30/20 Rule breaks your total income down into 3 main categories, advising how much of your income to put towards each category. Here is how it breaks down:
- 50% of your take-home pay (after taxes are deducted from your paycheck) should go toward major needs and living expenses, like housing (mortgage or rent), utility payments (gas, electricity, water, phone, internet, etc.), transportation costs, insurance, groceries, you get the idea. This category also includes debt payments, so if you have credit cards, student loans, or a car payment you’re working to pay off, those payments would come out of this portion of your pay as well.
- 30% of your after-tax income goes toward your wants, like clothing, dining out, entertainment, travel, subscription services, and other things that are wants and not needs.
- The remaining 20% goes toward your long-term savings, whether you choose to put your savings into a high-yield savings account, a certificate account, money market account, retirement savings, investments, or any combination of these.
Income-Based Savings
Another savings plan you can go by is putting a set amount of each paycheck towards your savings. Simply save what you can, and then increase the amount you save as your income increases. Create a budget based on your current income and expenses. Our free Money Manager tool in Digital Banking helps you track your current spending habits, create a budget, set saving goals and track your progress. Total up all your essential expenses including mortgage or rent, utilities, insurance, groceries, gas, loans and credit cards and put these in one section of your budget. You can create a separate section of your budget for “spending money” or “fun money” for non-essential purchases. Then see what you’re left with, and put that amount into your savings. If you don’t have much wiggle room left in your budget after accounting for needs and wants, like if you only have $5 left, see if you might be able to cut back your spending in some areas. For example, you can see if you are able to switch to less expensive utility or insurance provider, spend less money on dining out, or cut out some subscription services. If that frees up some more room in your budget, then that leaves you with more money to put towards your savings goals.
Don’t Forget to Save for Emergencies
Emergencies happen, it’s best to be prepared. Life can throw you a curveball like job loss, medical problems, or serious car troubles at any time. Being prepared is one of the best things you can do to provide yourself financial security when the unexpected strikes. Having emergency savings gives you a cushion to fall back on when reeling from a sudden financial setback. Ideally, you would have enough savings to cover 3-6 months of essential expenses, including monthly bills and fees and any other fixed expenses. Our Super Saver certificate is a great way to kick-start your emergency savings. Once you have your emergency savings covered, you can reallocate your savings to your long-term savings goals.
Automate Your Savings
Once you have your savings goals set, now it’s time to figure out how to make it happen. It’s easy to promise to set aside an amount for savings, but it’s not always that easy to stick with it and remember to move your money before spending it elsewhere. Luckily, there is a cheat-proof method to satisfy your savings plan: automate your savings! Create an automatic transfer in Digital Banking to move your money to savings without even having to think about. You won’t even have a chance to miss the money that’s moving out of your account!
Personalize Your Plan
Like we said, there is no one-size-fits-all when it comes to saving money. Your saving abilities will change as your life changes, so it’s important to stay flexible, and plan for the future when possible. If you’re planning for big milestones, like buying a new home, having children, or retiring, then make sure you adjust your savings plan accordingly so you are prepared for these milestones when they arrive. No matter what you’re saving for, we’re here to help you every step along the way.
At Robins Financial Credit Union, our mission is to enhance the financial well-being of our members and community. We honor this commitment by providing educational content to help you make the most of your finances. Read our other blog articles to help you gain the financial knowledge you need to succeed.