Do You Save Enough?05.23.12
One integral part of preparing for the future is savings. In the 1980s Americans households were savings an estimated 11 percent of their income. By 2005, that number plummeted to near zero. Since the so-called Great Recession, many of us have been keenly reminded of the importance of having emergency savings and retirement funds. But how do you know if you are saving enough? Cotton Candy contributor and author of Moneylicious: A Financial Clue for Generation Y Ornella Grosz gives us five steps that will help determine if you are saving enough money for your long-term financial security and immediate goals.
No. 1 Have a stash of cash. Saving enough for a rainy day fund requires a minimum of three months of expenses. As overwhelming as that goal may seem, take it one day at a time. Setting a smaller goal will help you reach your ultimate target. Start by breaking the goal into increments. At first, strive to save $500, and then work on saving $1,000 in six months. Then, gradually save up to at least three months worth of your monthly expenses. Even a small stash is better than no savings at all.
No. 2 Guilt-free spending. Not all financial goals have to be about saving for the future. Establishing a guilt-free spending account or splurge account will keep you from tapping into your emergency fund when you want to buy your must haves. If shopping brings you a sense of happiness, splurge as long as you have saved enough money for it.
No. 3 Automate your savings. As you set up a percentage of your income to be automatically deducted, allow for potential automatic increases. A raise at your job should translate instantly to an increase your contributions. Try saving the raise, and continue to live off of your old paycheck. Ideally you should be putting away at least 15 percent of your income.
No. 4 Remain calm. Remove all emotions when making investment decisions, and follow an approach that leads you to your long-term financial goals. Too often, investors lose potential earnings in the market because of uneasy emotions that drive them to pull out of their investments.
No. 5 Pay yourself. Paying off credit card debt or an auto loan feels as if you are taking a heavy weight off your shoulders. Now that you have those debts paid off, begin allocating your old debt monthly payments to your savings accounts. This will rev up the strategy to meet your financial goals and is a way to leverage the money you already have without additional income.