A well-padded savings account is something that everybody dreams of, but few of us actually manage to achieve it. By the time you've paid for bills, groceries, and other living expenses, it can often feel like there's too little left over to save. However, it's critically important.
Most people only put an average of 3.5% of each paycheck into their savings account. While it's better than nothing, it's also a precariously low amount. Depending on how big your paychecks are, that amount may not provide you with a large enough safety net in the event of an emergency.
Just what percentage of your paycheck should you put into savings? Unfortunately, there is no one-size-fits-all number. Everyone has differences in income, expenses and goals, and the percentage you choose must be based on these. Luckily, there are a few ways you can figure out how much you should be saving.
Decide What Your Ultimate Goals Are
Sit down and decide how much you'd like to save and what for. Many people want to save for retirement or a long-term emergency fund. Others may want to save for a new car, a down payment on a house, or even a vacation. Whatever you want to save for, you need to figure out how much money you'll need and the deadline by which you want to have it.
Establish Short-Term Goals
Establishing short-term goals will make it easier to adhere to your long-term ones. Say, for example, that you're saving for a new car. Decide on a date you want to have saved a certain amount of the total goal by. When you've reached that short-term goal, it gives you a feeling of satisfaction and confirms that you're moving in the right direction. Together, these things reinforce your desire to save.
Make It Work
Of course, you run the risk of having some serious financial problems if you start tossing money into savings without taking a long, hard look at your budget. Therefore, you need to spend some time writing out your budget and deciding how you can work your savings goals into it. Jot down your average income and expenditure, and decide how much of the leftovers you can reasonably put into savings.
If it's not enough, review your spending habits and find any luxuries that you can cut back on. After deciding on how much to save, make sure to write it into your budget so you can refer to it as needed. Whatever you do, however, never leave yourself completely broke after paying bills and adding to savings. This is where many people run into issues.
Regardless of how tight your budget is or how grand or small your goals are, keep putting money into savings. If an unexpected variable means you can't save your typical amount during a pay period, add a little anyway, even if it's only $10. Something is better than nothing, and it all adds up.