Saving money is critical and it’s a key ingredient to a healthy financial future. With the national unemployment rate at 9.9%, most people are unable to save money and are living paycheck to paycheck. Trying to save money during this tough economic climate may seem overwhelming. But it is possible to save money, even if you are living paycheck to paycheck – visit HelpSaveMyDollars.com’s The 20 Laws of Saving Money for simple ways to save money, without changing your lifestyle.
Regardless, it is impossible to take on a financial task without a clear goal. We always hear people say, “It’s important to save money!” This is great advice, but how much money should you save? The answer is simple.
1. Emergency Fund – You need enough money in liquid cash to cover your expenses for at least 8 months in case you lose your job. If your monthly expenses are $4,000 per month, then you should have at least $32,000 in a savings account that you can access at any time. Times are tough and uncertain. Chances are, you don’t know if you’ll have a job in 10 months, as unfortunate as that possibility may be. According to the Bureau of Labor Statistics, 6.7 million people in April were unemployed for at least 27 weeks – that means it could take 6-8 months or even longer to find a job! During tough economic times, we cannot assume that our lives/financial situations will improve in the future – plan for the worst, hope for the best. That’s where an emergency fund comes into play.
Your goal should be to reduce your expenses and save as much money as you can in order to develop an emergency fund tailored to the constraints above.
2. Retirement Savings – Aside from an emergency fund, retirement savings is also important. You should be saving 10% of your income each year and if you’re over age 40, aim to save 15% of your annual income. The goal is to have enough money in savings by the time you retire to generate sufficient income from the interest you earn from your savings. Contribute up to your employer’s match in a 401(k) plan and open up a Roth IRA at a discount brokerage firm.
If you set goals
and follow them, you will be able to save money! Having enough money in savings allows us to prepare for the unexpected financial problems that may arise in the future.
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