How much money should you save each month? There are many ways to answer this question. The short answer is that you must save a minimum of 20% of your income every month. At least 12 percent to 15% of which should go to the retirement accounts. The other 5% to 8% of that should go towards a combination of building an emergency fund, creating other long-term savings, and repaying the debt. Although this is a good rule of thumb, it is not the only answer. If one wants a more in-depth answer, read on.
What are your financial goals?
To take a deep dive into determining how much one should save each month, start by looking at your goals. Roughly speaking, the financial goals break down into four buckets:- Expenses that are coming in less than a year
- Expenses that arrive in less than a decade
- Long-term/ten years or so away
- Short-term financial goals
Expenses coming in less than a year are things like taking a vacation to the beach, buying holiday gifts, making sure that one has enough money on hand to pay all the taxes, and maintaining the savings for a birthday party. Another example of a short-term financial goal-saving is the value of six months of spending from an emergency fund. One can do it in less than a year. If you want to save $5,000 in nine months, you will need to put in $ 555 a month to achieve this goal.
Long-term financial goals
Long-term financial goals are more than five years but less than ten years. They include expenses like replacing appliances, making major repairs at home, buying a new car (ideally by paying in cash for it), or making mortgage payments for the house.
Extremely long-term financial goals
Under the ambit of over ten years, one’s goals could include building a sizable education savings fund for your children or buying a second home. Of course, one must also include the ultimate goal of long-term savings, aka retirement.Create a list, plan, and Calculate
People have already covered the subject of retirement, so this list of expenses includes stuff that one is currently saving and everything else, such as weddings, home repairs, vacations, travel, and education savings. Then divide this amount of time by the amount of money that is needed for each goal. For example, assume that a saving amount of $10,000 is required for a wedding, and the plan is to get married in the next two years. One will need to save $416 per month over the next 24 months to reach the $10,000 target. Apply this calculation over all the goals mentioned on the list. To get a better view of the current situation.
What to do if a person has high saving goals?
If you set goals that are outside your means, you will defeat the purpose of making goals. When it comes to savings or budgeting, you have to modify or cut some of the goals. Can a cheaper car be bought? Have a more affordable wedding. Buy a cheaper house, which will require a smaller payment. Then look at how can the current expenses be reduced. Canceling cable TV can save an extra $50 or $60 a month that can be put toward one of the many savings goals. Then see if the deadline for one of the goals can be extended. Is it necessary to replace the kitchen appliances this year, or the current appliances are bearable for at least the next few years? Finally, look for ways to make more money, for example, by freelancing on the side.
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