We just discussed how to make saving a habit, but a lot of people do not know how much to save. Since you know how to save, today take a few minutes to decide on a saving goal and put a savings plan to action.
Minimum Savings – Emergency Fund
At a bare minimum, you should have an emergency fund. Most finance folks suggest you save at least three to six months of expenses at a minimum to ensure you can survive a job loss or unexpected expense. I agree 100%. If you don’t have at minimum three months of expenses easy to get to in the bank, you might end up in a tough spot if you income goes away.
It is also important to have the cash on hand in case an unexpected emergency arises. Sometimes, that emergency is a broken furnace or water heater. Other times, it is a new set of tires or a bad transmission. Medical bills, home or car repairs, funeral visits, and other last minute problems are not expected, but you can plan for them by keeping emergency cash in the bank.
Build an Extra Cushion
Once you reach your emergency fund goal, you shouldn’t stop saving. I passed my emergency fund goal earlier this year and started saving in my Liberty Fund, a $30,000 bank account that will cover almost anything that comes up.
I may use it for a down payment on a new home, or a rental property. I may use it to move across the country. I may use it for a new car. If anything happens with my job or my company, I can easily live for quite a long time on that kind of money.
Saving for Retirement
Retirement is the biggest savings goal you will ever have in your life. When you retire, you need enough assets to cover the last ten, twenty, or fifty years of your life. A lot of factors come in to how long you will be retired. Whatever your plan, you need to be ready.
I save 5% of my pay in my company’s 401(k), and another 4% is matched by the company. I also max out my Roth IRA every year. That is all on top of my Liberty fund.
A common guideline is that we will need to replace 70% of our income in retirement. Calculate that goal, and how long you expect to live on retirement income, and back into what you need. Or, you can just use this retirement calculator from AARP.
You Never Have too Much Money
Something to think of when you are saving and budgeting: you can never have too much money. Warren Buffet didn’t get rich by spending all of his income. He lives in the same house he bought for $31,500 in 1958.
If you save a lot, and save more, you are in great shape. Not saving enough is a very common regret for people in their 30s, 40s, and beyond when thinking about retirement.
Your Savings Plans
What is your savings goal? How are you working to get there? Please share your story in the comments.
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6 thoughts on “How to Set a Savings Goal”
My current goal is to save up as much as I can to help my girlfriend pay down her student loans when we get married. I’m just putting away as much as I can until we get there.
That is a great goal Lance. Does she know about the plan? Are you helping pay as you save, or are you saving it up in a high interest account so you can do a big payoff after the big day?
she does know and some of it is in an ING account and the other part is in VBINX… i need to sell VBINX though and buy something more conservative now that it has a shorter term goal. I’ll help pay toward them after the big day, but it won’t knock them out unfortunately.
My savings goal is to save up enough to pay my parents back for a down payment they’re gifting me!
That is very noble of you. Did they mean for you to pay it back?
Yes, they absolutely do!
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