How Much Money Should I Have in Savings?
June 22, 2021
GETTING SERIOUS ABOUT SAVING MONEY
With technological advances comes an equal number of new, convenient ways to spend money, thanks to online shopping, in-app purchases, and debit card swipes at all your favorite places. So, the question remains: How much money should I have in savings? We’re glad you asked.
By focusing on saving, you can build a plan that works for your future—and earn interest while you’re at it. Renasant Bank offers several secure, simple, and accessible savings plans to help you jump-start your savings journey.
THE 50/30/20 RULE
Here’s the secret: There’s no one-size-fits-all amount that answers the question, “How much money should I save?” To find the right answer for you, look at your income in terms of percentages. This allows you to break down your expenses into buckets, then fill them with your income. Start by figuring out your income and expenses. Be precise—it’s hard to allocate money without knowing how much you have and what you need.
One popular approach is the 50/30/20 method, in which you earmark 50% of your income for needs, 30% for wants and 20% for long-term savings.
- Needs include your necessary basics, like rent or mortgage payments, car payments, utility costs (heat/cooling, water, electricity, waste disposal), phone, Internet and insurance (life, health, home). These are items you need to pay every month, and they’re also known as “fixed” costs.
- Wants, or “discretionary” items include things you can live without, but that are important to you. They include entertainment, cosmetics, and audiobook or music service subscriptions—even your Amazon Prime membership. Food gets a little tricky—some experts place it in “needs,” while others put it in “wants,” depending on whether you tend to shop at the grocery store or spend your money on takeout and food-prep services.
- The last 20% of your income should go into long-term savings. Whether you choose a high-yield savings account, certificate of deposit account (or CD savings), investment account, or retirement account—or a combination of different accounts—is up to you (and your financial advisor). When most people ask, “How much money should I have in savings?” this is what they’re talking about—long-term savings for significant life events like college costs and retirement.
When determining how much to save, you should also include a bucket for emergencies into the process. It’s one of the best moves you can make to provide yourself with financial security in case of job loss, major car problems or medical issues.
- Ideally, you should be able to cover three to six months of expenses with your emergency savings. These expenses include any bill and fee you’re responsible for paying monthly, whether they fall into the fixed or discretionary columns of your budget. (Obviously, when money is tight, you’ll focus on paying for your “needs” and cut back on “wants.”)
- Sock away cash into your emergency savings account as quickly as you can. The best way to do this is to take that 20% “bucket” for long-term savings and use that money to fund your emergency savings account first.
- If possible, you should also try to use less than 30% of your income on discretionary spending and put any excess savings toward this emergency account. Once you have six months’ worth of expenses saved for, you can reallocate the money to long-term planning.
PERSONALIZE YOUR SAVINGS PLAN
Your savings plan should change as your life changes. Be proactive about planning for milestones based on where you live, whether you’re married, whether you have kids and how you want to spend your retirement.
You may decide to open a “vacation” savings account and sock away $10 a week toward your dream trip. Maybe you’re deeply involved in your house of worship or helping others and want to donate 10% of your salary to charity. In either case, you’d have to adjust your savings allocations to account for this expense.
Have a solid plan for every dollar you earn so that you don’t outspend your income and are prepared in the event of a medical or financial emergency. You can do it—and the experts at Renasant will be with you every step of the way. Get started with our banking experts today to get on the right savings track for you.