How Much Should You Put Into Savings?
Things to consider when working toward your financial goals
In 2011, CNN Money reported that Americans had saved just 3.6 percent of their paychecks in September of the same year. If this amount sounds low to you, that's probably because it is. While it would be nice if there were a single dollar amount serving as a guideline of what everyone should put into savings each month, savings plans aren't meant to be homogenous. You can decide to put a flat amount into savings, such as 15 percent of your paycheck, but without an idea of what your savings goals are, you could find that 15 percent is too little. You may also not be sure how to most effectively invest it or whether to choose an account with early withdrawal penalties. The best way to determine the amount that you should put into savings is to look at your individual goals and budget.
One thing is certain: while you can never have too much in savings, you can definitely have too little. Follow these four steps to help ensure that doesn't happen to you:
- Determine your savings goals. Take some time to decide how much you want in your short-term emergency savings, your long-term savings and your retirement savings. Give yourself goals for both the amount and the date by which you want to have your objectives met.
- Create milestones. After outlining your goals and determining what accounts are best suited for the associated savings, set milestones to serve as checkpoints to help ensure that you are headed in the right direction toward your goals.
- Work it into your budget. Now that you have identified your goals and milestones, it's time to look at your budget and see if they are possible. You may need to readjust your goals once you take a look at the reality of your budget.
- Always add more. No matter how strict your budget is and how modest your goals, you should always add money to your savings.