Having a savings account and adding to it regularly is an essential part of an effective personal financial plan. There are many possible reasons why you would want to do this. Also, the amount you deposit into savings every month will be dependent on your current situation and specific objectives. It is important your savings plan is designed to achieve your particular goals.
Retirement
To keep your quality of life during your retirement years at an acceptable level, you will need adequate resources and capital. This will include having enough cash on hand. Therefore, making sure you start regularly contributing to your savings account as soon as possible will help ensure you are comfortable during your golden years.
Preparing for the unexpected
Life is full of surprises which means you will need to be financially prepared to deal with any unforeseen circumstance which may arise. You may encounter a desperate situation in which significant amounts of cash is needed. This can include things such as natural disasters, unexpectedly losing your job, emergency car repairs or even losing your home in a fire.
Getting ready for death
Making sure you are prepared for death can require that you have some cash saved up. This can be useful for your intended heirs and their financial security, especially if you are a caregiver for elderly parents, a disabled adult, or minor children. Savings can also help pay for your funeral costs and other related expenses.
College tuition for your children
Providing higher education for your children has become quite an expensive project nowadays. You may also have to pay for other expenses related to sending your children to college, such as textbooks, food, housing, and other basic living necessities. Therefore, you will want to set aside enough money in your savings to make sure you can meet these needs for your children’s education.
How much is best to deposit into savings each month?
The ideal amount you should put into your savings account will depend on your financial goals and circumstances. However, many financial experts say around 20% of your monthly income is usually a good amount for most people to aim for.
Of course, those of lesser means may not be able to deposit that much of their income into savings each month since much more of their income is required for everyday living costs. If this is the case for you, perhaps you can consider around 5% to 10% of your income.
Instead of a percentage, you can also think about aiming for a particular dollar amount. Most personal finance professionals suggest around $1,000 per month for most people, but this can vary depending upon your income level and living expenses.
Let us help bring clarity to how much you need to save each month to pursue your particular objectives.
Opinions expressed in this blog post are those of the author and not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. The information has been obtained from sources considered reliable, but we do not guarantee that the foregoing material is accurate or complete. The material presented herein is not a recommendation of any kind. Raymond James Financial Services and its advisors do not offer legal or tax advice. You should discuss any tax or legal matters with the appropriate professional.