There is no answer to how much money you should have in your savings accounts. However, your lifestyle will determine how much you need. It is recommended to have enough money to pay for three to six months of your basic expenses.
It’s possible to save so much cash without feeling overwhelmed. This article will help you determine your target balance and provide some tips on how to grow your savings quickly.
Everyone has a different opinion about how much cash to keep in your bank accounts. It all depends on your financial situation. You will need to have money in the bank for your regular bills, discretionary spending, and emergency funds.
It may be necessary to reevaluate your perception of what amount you should have available. Even if you have an emergency fund, learn from this experience to change your perception of what is necessary and comfortable.
Your budget is the foundation of everything. Are you lacking a budget? Don’t you have a budget? You may find it challenging to budget appropriately and not have enough money in your bank account. Now is the time to create one or refine your plan. Here are some ideas.
KEY TAKEAWAYS
- Your financial situation and savings goals will determine how much cash you should have in the bank. It all begins with a budget.
- Budgeting is easy with the 50/30/20 rule or Dave Ramsey’s financial guru method.
- These two templates provide a guideline for allocating money to regular bills and discretionary spending. You can also set aside some of your savings to fund an emergency fund.
- Determine the amount you want to save by adding up your core expenses over three to six months.
- A recurring transfer to high-yield savings accounts can help you build your balance. This will reduce costs and increase income.
- You may want to invest more money if you have enough savings.
The 50/30/20 rule
Let’s start with the popular 50/30/20 budget rule. Senator Elizabeth Warren and her daughter introduced the rule in All Your Worth: A Ultimate Lifetime Money Plan. Instead of trying to follow a complicated, crazy-number-of-lines budget, you can think of your money as sitting in three buckets.1
Fixed Prices that don’t change (Fixed).
Although it would be nice not to have monthly bills, the electricity bill comes every month, just as the water, internet, mortgage, or rent bills. Once you have determined that these costs are necessary, you will be able to pay them.
Fixed expenses should consume around 50% of your monthly budget.
Discretionary money: 30%
This is where everything (within reason) goes. This is your money to spend on needs instead of wants.
It’s not surprising that planners include food in their budget. This is because you have so many options for handling the expense. You can eat out or make your own. Or you could buy a generic or name-brand brand.
You can also add a movie to your bucket, buy a new tablet or donate to charity. You decide. You can take 30% of your income as a rule, but financial experts will argue that 30% is too high.
Financial Goals: 20%
You’re setting yourself up to fail if you don’t save for the future. Most brokerages offer the ability to set up retirement funds such as IRAs or Roth IRAs. This is where you should put the last 20% of your monthly income. This funding is vital for your future.
You should use most of this 20% to create an emergency fund.
Finding your target number
You can determine how much savings you need or how many months’ worth of expenses you have to save. Start by looking at your most recent credit and bank statements.
Only consider essential expenses such as rent, mortgage payments, premiums, and loan payments. You should also not spend on food and transportation. Having enough savings to pay your bills for the next few months without adding debt is necessary. Contributions to savings and spending on entertainment are not required. In an emergency, you might drastically reduce those costs.
Let’s say your monthly core expenses are $3,000. At least three times your monthly payments, which is $9,000 per month, will be required to save. You could also aim for $18,000, six times your monthly expenses, to give you more security.
It is best to have three to six months’ expenses saved. However, you can choose to save more. You might consider saving up to 12 months of expenses if you believe it will take you longer than six months for a job to replace yours or your income is not consistent. To allow for occasional entertainment or dining out, you might want to increase your savings goal.
Frequently Asked Questions
How much should I save vs. check?
Keep your living expenses in your checking account for about one to two months. You can also keep a buffer of 30% and three to six more months in savings, yielding more significant returns.
How can I estimate the cost of three to six months’ living expenses?
Take a look at your recent bank and credit card statements to see how much you spend on your most essential bills. Only consider necessary expenses such as rent, mortgage payments, insurance premiums, and debt repayments.
What’s the average savings account balance for
According to a survey, the median savings account balance for Americans aged 18-34 was $1,000. For those 35-44, it was $2,500, and for those 45-54, it was $4,000.
Simple ways to increase your savings account
You can take simple steps to ensure you have enough money in your savings accounts. The easiest way to cut down on unnecessary expenses is to find small ways. You could, for example, pack a lunch once a week if you eat out at restaurants every day. Or for weekend entertainment, consider free, community-sponsored activities. It doesn’t mean you have to give up on the things you love. Just make minor adjustments to save money.
Another option is to take on a part-time job or start a side business for additional income.
To easily save what you have, use recurring, automated transfers. These can be set up through the bank’s website or mobile application for each payday. This will make it easy to build savings.
What’s the average interest rate for savings accounts?
Today’s average savings account earns just 0.06%. If you have $3,000 in savings, you would only make a few dollars per year in interest.
If you place the same $3,000 into a high-yield savings fund that earns a 0.50% annual percentage return, it will achieve more than $15 over a year. This interest earns interest over time which can help your savings grow even further. This is known as compound interest. While it won’t make you wealthy, it will help you increase your savings balance more quickly.
How much money should I keep in my checking account?
Checking accounts can handle many transactions, such as paying bills and withdrawing cash to pay daily expenses. Your checking account must have enough money to pay your monthly bills and start some money for any other costs. You should also have a buffer. David Ramsey suggests that you include a cushion that makes you feel comfortable but not too much that you are tempted to spend more than you need.
