Did you know that according to a study the Federal Reserve completed in Consumer Finances, the average American family has $40,000 in savings?
The average American household has savings across checking accounts, call deposit accounts, savings accounts, money market accounts, and prepaid cards. The amount of money you should work on saving each month will depend on your current financial situation and what you want your financial situation to look like in the future.
Are you interested in learning what your monthly savings should be?
Read also: The definitive 5 step plan for investment success
We’ve created this guide to help you learn how to become more financially secure. Keep reading to learn more!
Why Is Saving Money Important?
Saving money is important because it helps you to invest in your financial future. With more than 78% of Americans living paycheck to paycheck, many people don’t have any money set aside for an emergency fund or retirement savings.
Building a savings account will allow you flexibility in the future. Plus, if you are ever in a situation where you need to access money for an emergency, you won’t have to take a potential hit on your credit score by applying for a personal loan. A savings account will allow you more freedom in your financial decisions because you won’t have a single source of income to rely on.
How Much Should You Be Paying Towards Monthly Savings?
A general rule of thumb is the 50/30/20 rule. When you follow this rule, 50% of your income will be spent on essentials such as food, rent, and utility bills. 30% of your income should act as discretionary spending, which will go towards extras that you want to purchase, such as clothing or tickets for a fun activity. The remaining 20% of your income should be put towards savings.
Where Should You Start?
If saving money is a new concept to you and it seems overwhelming, the first step that you could take is building an emergency fund.
An emergency fund will be used for any surprises or unexpected costs that come in your future. Your emergency fund covers some of the things that include unexpected car repairs, replacing a broken appliance, or covering a medical emergency. An emergency fund will cover the costs of any of these events, and you won’t be put into any credit card or personal loan debt.
Can You Save More Money Than 20%?
Yes, you can save more than 20% of your income to put into a savings account. You can find ways to be more frugal in your daily life habits that will help you to contribute more money to your savings account.
One way that you could be more frugal is to look for discounts when you’re out shopping. You can also seek out cheaper rates on your car insurance, your phone bill, or any other monthly expense. Sick of money on these monthly or weekly expenses will help you to build more room in your budget to put into your savings account.
Understanding the Importance of a Monthly Savings
Saving money for your future is one of the most critical steps that you can take to develop a healthy financial life for yourself. Creating a monthly savings plan will force you to take a look at your current financial situation and prepare for an improved financial future.