The pandemic has taxed Americans’ financial resources – the savings are enclosed her lowest point in years. When extra money comes in, it can be difficult to know how much to save and how much to spend on expenses. But every little bit you put aside helps.
How Much Should You Keep in Your Savings Account?
Your unique financial situation will determine how much of your paycheck will be used for savings. Setting aside just a few dollars may seem daunting, but it’s worth slowly and carefully building your money in the long run.
Some factors that will determine your savings goals are:
- retirement provision
- Do you need a big purchase like a house or a car
There isn’t a right answer to how much to keep in your savings, but we’re going to cover a few factors to help you set guidelines.
Income and expenditure
The first thing you want to do is check your monthly income and expenses. See how much is coming into your account, how much is being spent and where the money is going. This will help you find a target number to work towards – spending three months, for example, to insure you if you lose your job.
Recently Bank and credit card statements can help you get an idea of where your money is going. Many banking apps will also help you keep track of monthly expenses and build a budget. Even if you use pen and paper, the idea is to take control by creating an accurate picture of your finances.
Bills and recurring expenses
Take a look at the bills that you can’t ignore – like rent and utilities – and get a better idea of what you could save in an emergency. If you have a streaming subscription that you don’t use often, or if you want to order less food a few nights a week, keep these areas in mind.
When you’ve done that job, look at the number. For example, let’s say your monthly expenses are $ 2,000. If your goal is to create one Emergency fund For three months’ worth of expenses, your savings goal would be $ 6,000 or more.
Most experts advise saving three to six months’ worth of expenses, but saving even a few hundred dollars on unexpected expenses like car repairs can make a world of good.
Determine how much you want to save
Once you have identified your goal, calculate how much money per month or per Paycheck put aside towards that goal. You can also see which banks offer the best savings account options.
When you have enough money, it is advisable to keep separate accounts for long-term goals like an emergency fund and short-term ones like minor renovations or vacations. However, an emergency fund should be your first goal if you don’t have such an account set up.
See your take-away payment and how much you have left after the bills. Then determine an amount of dollars or a percentage of the leftover money to be converted into savings each month.
For example, let’s say you make $ 2,800 a month and have $ 800 left after spending. You can take it – 100, 200, or whatever you can manage – and save it. You can then get an idea of how long it will take to meet your savings goals. For example, if you are working towards an emergency fund of $ 6,000 and putting in $ 500 per month, you will achieve that goal in a year.
This can be difficult with variable income. Instead of a set number, consider a set percentage like 10% of your total check from your last project. The most important thing is to work a little towards your goals on a regular basis.
Plan what you would do with unexpected monetary damage. How much would you save and how much would you spend?
What About Paying Off Debts?
Try to set aside a certain amount each month to pay off some debts as well. Continuing the previous example and putting $ 500 each month on your financial goals and $ 100 on your major debt balance will help reduce debt while building your savings. Remember, this will also change the timeline of your goal.
Where should you put your money
Not all banks are created equal. You want your money in one saving account This offers a reasonable interest rate on your balance with minimal to no fees.
Some fees to look out for when shopping for banks include:
- Overdraft fees
- Monthly maintenance fees
- Minimum balance
- Transaction fees
You can open a joint checking and savings account at most of the major banks. Look for one that doesn’t require a huge minimum deposit to open an account. Some banks allow you to open an account by depositing any amount of money.
Banks that offer features like overdraft protection and alerts can help you stay within your budget. Make sure the bank you are working with is on FDIC insured So the money you deposit is protected. Avoid banks that charge a monthly maintenance fee just to keep the account open. Some banks only charge this fee if your balance falls below a certain amount. So make sure you know this amount in advance.
Find out what rules the bank has for withdrawals. Does it have a maximum number of withdrawals Can you do per month? What happens if you cross that limit?
Check out both conventional and online banking products as some offer a better deal than others. A savings account with a separate institution from your main bank might be better if it offers a higher interest rate. Wherever you put the money, you should have instant access to it when you need it.
As of March 2021, some of the best interest rates and institutions for savings accounts are:
All of the above banks are FDIC insured or partner with banks that are.
All savings goals look different. If the concept intimidates you or you don’t think saving is realistic, start small. Create an emergency account for unplanned expenses and work from there.
See all of your income and expenses. See how much you have left after bills, even if it’s only a few dollars. Decide how much you want to put away and how often you will do it. If you can, set up an automatic recurring transfer to your savings account.
Plan short and long term goals with a realistic schedule, work towards them little by little, and watch how your efforts add up.
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About the author
John Bogna is a freelance writer and photographer based in Houston, Texas. His background spans topics from technology to culture and includes working for the Seattle Times, Houston Press, WebMD, and Mailchimp. Before moving to Bayou City, John earned a BA in Journalism from CSU Long Beach.