Now more than ever, Americans are having a hard time saving money. The median U.S. household has about $12,000 put away, but the median millennial holds a measly $2,400 in total savings. Feeling overwhelmed by your lack of savings? Breathe. With some careful planning you too can be on track for saving smart in no time!
Ideally, you should save 10-15 percent of your income for retirement. Sound like a lot? If your employer offers a retirement matching program, that counts! If you put away 5 percent, and your boss puts in another 5 percent, you’re already at your 10 percent goal!
Another goal to keep in mind is to have the equivalent of a total annual salary saved for retirement by the time you hit 30. If you hit this goal, then you’re on track to hit 10x your annual salary by the time you’re 67—a solid financial position to be in by the time you reach retirement age.
Establish an emergency fund that will cover you for the next 3-9 months if your circumstances should dramatically and suddenly change. How much is that, really? Well, you should calculate your monthly no-frills cost of living—rent, utilities, groceries, insurance etc. If you were to suddenly lose your job, you would probably do away with your monthly manicure, basketball tickets and other splurge items.
Once you have a monthly amount, divide this number in half. Can you save this every month? If not, divide the number in half again and begin putting away money every month towards your emergency fund. If you’re diligent with your saving, you should have a solid emergency fund within a year.
Think about the big purchases looming in the distant or not-so-distant future. Buying a home, throwing a wedding, a dream vacation or home improvements.
Break down how much each of these big-ticket items will cost you and list them by priority in a spread sheet. Then list how many months you have remaining to save up for each expense. Divide the total cost by the number of months, and voila! That’s how much you should be saving every month.
You might find that each and every one of these items might not fit into your savings calendar, and that’s okay. Cut some luxury expenses, contemplate asking for a raise (or looking for another job), lengthen the timeline or tighten the budget on your pending projects.
You can see if you'll be able to save enough money & hit your goal on time with our savings calculator.
If you’re looking for a simple answer when it comes to saving, the 50/30/20 rule is a great place to start when thinking about your monthly saving habits.
- 50 percent of your monthly income should go towards necessities (rent, taxes, groceries)
- 30 percent goes towards incidentals (vacation, luxury items, going out to eat)
- 20 percent goes towards savings
You can definitely save more, but if you can hit your 20 percent goal, you’ll be in pretty good shape.