Check Your Money in 2020: Savings

Posted by CapWay in SavingsJanuary 14, 2020(Last Updated December 30, 2022)3 min read
Key Takeaways
  • Savings is what working on your finances is all about.
  • Savings is required for any major financial goal
  • The major question people ask is how much should I save?
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Savings is what working on your finances is all about. Savings is required for any major financial goal--whether you want to stack up a fat retirement fund, transition to travelling more and working less, or buy a home that you can pass down to your children one day.  Try to think of a financial goal that doesn’t require you to have money set aside. We’ll wait…
 

Source: Giphy

 

Savings is a tricky topic--the biggest question on most people’s minds is: how much should I save? 

 

Your savings goal for various categories will be different from person to person. However, we have pulled together a few guidelines to help you understand how much you should set aside. 

 

When should you focus on saving? 

 

Savings are essential to financial success and a recent study proved that having as little as $250 in emergency savings is enough to keep most Americans from falling behind on bills. If you do not have at least two weeks worth of savings set aside, then your major goal should be to work on building savings. This is an emergency situation where it is important to put the mask on yourself before attending to anything else. If you have active debt balances that need to be paid, pay the minimum and build an emergency fund as soon as possible. 
 

Typically, you want to focus on your finances in the following steps: 


 

Here are two good points to focus on saving: 

 

1. At the beginning of your financial journey (before you pay off high interest debt) 

 

After you check your income and budget, then you should build up to one month of emergency savings. At that time, you also want to make sure that you are contributing something to retirement. If your job offers an employee match, then try to contribute at least up to the match. 
 

2. After you pay off high-interest debt 

 

After you get rid of credit card debt, collections, or any other debt besides a mortgage, then use this as a checkpoint to see if there are any opportunities to grow your emergency savings and then your retirement savings. 

 

How much should you save?

 

Emergency savings before your high-interest debt is paid off 

 

 We recommend saving up to one month of take home pay before you start paying off high interest debt. Saving is important but needs to make sense with your financial situation.There are some instances where you may be able to save more or less than recommended. 
 

How much you should save depends on how much risk you can handle. For example, with the emergency savings goal of 1 month, a single person who has very good job security and no dependents may decide to have a smaller emergency fund and focus on getting rid of their credit card balance. 
 

However, it would be more important for a parent with a mortgage to save at least the full one month of expenses. Their chance of having an unexpected expense with their family or house may be higher than the single person. 
 

Emergency savings after your high-interest debt is paid off 

 

After your high-interest debt is paid off, then you can focus on building up to three to six months of savings. Depending on your life situation, you may be able to handle saving less. But, increasing your savings to cover a few months of income usually takes longer than your first savings goal of 1 full month of take home pay. It is not uncommon to spend more than six months working on this goal. 

 

Retirement Savings

 

 

You living your best life in retirement 


 

Understanding how much you need to save for retirement needs more expertise to get the numbers right for you. A Certified Financial Planner (CFP®) or Financial Advisor can help you understand how much you need to save towards retirement. Your savings deposits for retirement will be based on how much you anticipate spending when you are retired. 
 

However, for now you can focus on making sure that you have started saving and make sure that your financial decisions allow you to increase how much you save over time. If your job offers a retirement match, then you at least want to make sure that you are contributing up to the match. A match is free money you don’t want to miss out on. If your budget cannot handle contributing up to the match today, then set a goal to increase your retirement contribution each year, especially when you receive raises. If you remove a debt payment, then add a portion or all of that towards your monthly retirement contribution. 


Main Image Source: Giphy 

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