How Much Money You Should Be Saving Each Month
How much money should I be saving each month? This is a question we’ve all asked ourselves at one point or another, but it’s one with a frustratingly intangible answer because often the answer is simply ‘it varies'.
Unfortunately, we can’t offer you any more concrete an answer today, but what we can do is help take some of the ambiguity out of it and give you the tools to answer it for yourself. Person to person, place to place, the amount of money you ‘should’ save is going to change, but follow these steps and you’ll find the right answer for you and your situation.
Define Your Goals
The first step to answering how much money you should be saving each month is to decide what you’re saving it for. A car? A house? A vacation? Retirement?
All those are valid goals, but it’s important to pick one (or ones) if you want to know how much you should be saving, and what the timeline for your savings should be. More ambitious and expensive goals will require you to save more, while less ambitious ones less.
It’s impossible to get where you’re going without a destination, which is why picking a goal is such an important step in knowing how much to save.
Map Your Timeline
Now that you have your goal in mind, the next step is to map out how long it’s going to take you to achieve it. The amount you need to save each month to buy a car in cash, for example, differs drastically whether it’s in one year or ten.
Understand Your Income
While knowing your goal and timeline are important, how much you can save each month is ultimately a function of your income. It may seem like a simple proposition on the surface, but can actually be more complicated than just checking your pay stub: bonuses, shifting work hours, and freelance work can all drastically change how much you make and will be able to save month to month.
The best way to get a handle on your income is to map it out over a prolonged period of time, and try to notice patterns: does it dip during the summer? Spike in the new year? Variations like these are important to know when you plan your saving schedule.
Plan for Instability
The truth is that most of us are terrible at predicting the details of the future, but one thing that we should all be able to predict is that at some point we’re going to be hit by a period of financial instability. It’s just an inevitability.
Why is that important to how much you should save each month though? It’s because every month at least a little of your savings should go towards an emergency fund for dealing with tough financial periods.
Without an emergency savings fund that you contribute to each month, when an emergency hits you’ll be forced to go into debt or rely on a flex loan. While flex loans in Tennessee are usually quite reasonable in price and flexibility, it’s still best to handle things with your savings when possible.
Note: The content provided in this article is only for informational purposes, and you should contact your financial advisor about your specific financial situation.