Depending on which source you think is most accurate, between 50 and 75 percent of Americans are currently living paycheck to paycheck. Maybe you also fall into this category. But while a strong desire to change the status quo makes a perfect start, you’ll need a lot more to get some savings socked away.
Saving requires discipline. You should be able to resist the urge to buy the latest smartphone or new pair of sneakers. Not what you wanted to hear, we know, but having some savings protects you in more ways than one.
Financial emergencies like car repairs, medical issues, and broken heating systems won’t plunge you into debt if you have money set aside for them. Also, having some savings enables you to start investing part of your earnings. But just how much should go into savings?
The amount you save depends on your financial goals. However, a good amount to start with is 10% of your earnings. If you can significantly cut down on your living expenses, you’ll be able to save more money and reach your goals sooner. Creating additional streams of income is also an excellent way to quickly put away more money for a rainy day.
Why Should I Be Saving?
Before you establish how much of your earnings to save, it’s a great idea to figure out what you’re putting away money for. You also need to have a clear target amount that you want to reach, as well as a date by which you want to achieve that savings goal.
If you’re new to saving, you can start with an emergency fund to cover minor financial emergencies such as the unforeseen need for repairs to your laptop or car. As you get the hang of things, you can move on to saving for significant financial disasters, such as getting laid off at work.
If you’re saving to protect yourself from a sudden loss of employment, experts recommend that you put away three or more months’ worth of your salary. Six months is, however, regarded as the ideal amount of coverage. But you don’t necessarily have to save half a year’s worth of income in one big swoop. It takes time and consistency to get there.
It’s also good to keep in mind that saving doesn’t always have to be for serious life events. You can save up for the new iPhone that’s coming in a few months or put away money each month to go on vacation next summer. This helps you stay out of debt while you move up to save for bigger things like a deposit on a new home.
How Much Should I Put Into Savings?
Most people have a vague idea about the benefits of saving, but many have no idea what amounts make a good minimum threshold for saving. Well, the truth is any amount you can afford to save is a good amount. Learn more about how to open a high yield savings account.
Most experts advise that you save between 10 and 20 percent of your earnings. However, these generalizations don’t always work for everyone. A good way to look at savings is to start by covering all the expenses that you can’t do without—your rent, utilities, car payments, loans, and such.
You can then work around what you have left. As such, creating a budget is, by far, the most important step in learning to save part of your income.
What If I Don’t Earn A Lot?
For many people, once they deduct their rent and other fixed monthly costs, they barely have enough to cover things they want, such as new clothing and entertainment. In such cases, there are two avenues you can take. The first one is to reduce your monthly expenses. This includes moving into a smaller apartment, downgrading your car, negotiating for more flexible loan payments, and other similar steps.
You can also try to come up with additional streams of income to add to your savings and pay for the little purchases you want to make here and there. But what’s important to remember is that your savings don’t have to grow overnight. The key thing is to start saving now and keep on with it. Over time, you’ll have something more substantial to work with.
Summing Up
A significant percentage of Americans are living from paycheck to paycheck, without any safety net to cover unforeseen circumstances. One reason that many people don’t start saving is that they think the amount they can afford to put away is too little to make a difference. Learn more about where to put your savings money.
In this article, we discussed how much you should ideally put into savings and what you can do if you think the amount is too little. The truth is that saving is a habit, and by starting small, you can eventually snowball your savings into something much bigger!
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