It’s great that you’re asking the question, “How much should I be saving?”, but first, we need to look at what your current cash and debt situation look like. You’ve probably heard the phrase, “cash is king,” and it’s true. You need cash to cover your daily living expenses, address financial emergencies, and much more. Without enough cash on hand (or in an easily accessible bank account), you risk having to turn to credit cards to pay for the basics.

Once people begin to use credit because they can’t afford to pay for something in cash, they too often get pulled into a vicious cycle that’s extremely difficult to get out of. That’s because the month after you put money on a credit card, it starts compounding interest daily. So, unless you can definitely pay it off that same month, you start losing money—often at a very high-interest rate. And once that happens, you’ll start to need more and more of your cash to pay down that debt. That, in turn, leaves less cash on hand, creating a situation where you need to again rely on your cards.

Focus on Cash Flow

So, cash flow is critical, meaning you need to tackle your higher-interest debt (which includes your car loans, student loans, credit-card debt, and home-equity loans) before you start socking away a lot of cash. That said, you need to ensure you have enough cash on hand to avoid relying on a credit card when an unexpected expense comes up, such as a car repair. You’re probably wondering, “How much should I be saving if I have high-interest debt to pay off?” Do whatever you can to save $1,000 (sell items on eBay, take on a second job or a side hustle, have a garage sale, whatever you need to do). This will cover that car repair or help you replace a broken-down dryer, and help you avoid using plastic. Then, focus on knocking out that bad debt, such as high-interest credit cards and loans. Once you’ve paid off the bad debt, you can focus on filling your savings buckets.

Filling Your Savings Buckets

How much should you be saving after you’ve paid off your high-interest debt? There are a number of savings buckets to focus on, but the first one to fill is your emergency-savings account. Experts say that the average family should aim to save six months’ worth of daily living expenses. That means enough to make any loan payments and pay for your groceries, clothing, household necessities, childcare, gas, utilities, insurance, and medical bills. The average U.S. household spends about $5,000 per month, so let’s go ahead and say that you need $5,000 a month to survive each month. Therefore, you should aim to save to $30,000.

Once you’ve covered all your savings bases, you might consider investing, starting a trust for your children, paying off your mortgage, or funneling more money toward your favorite nonprofit

Looking Beyond Emergency Savings

Okay, what if you have a healthy emergency savings account? Now what? Well, first, if you’ve hit or even exceeded your emergency savings goal, great job! According to, only 29% of Americans have six months’ worth of living expenses saved up, so congratulations! But even once you’ve met your emergency-savings goal and paid off all your bad debt, there are still others that need your attention. Here they are:

Regular Savings: Yes, that’s right, we’re talking about savings outside of your emergency savings. The emergency savings is money you should never touch, except, if, of course, there’s an emergency or crisis, such a long-term illness, disability, or job loss. Consider putting 5% to 10% of your income toward a regular savings account. Planning a remodel or considering buying a larger home? Earmark some of your savings for these large purchases so that you’re prepared to pay for them when the time comes.

Retirement Savings: You should be maxing out your retirement savings if you’ve got cash to spare once you’ve saved enough in emergency funds and paid off all your debt. For the record, no matter what your financial situation, you should at least be saving a percentage equal to what’s matched by your employer. You may be wondering, “How much should I be saving for retirement? A good rule of thumb is to aim to put 10% to 15% of your income into your retirement accounts.

College Savings: Have kids? If so, you should be saving for college, even if you’re not sure whether your child(ren) will want to attend. Certain types of college-savings vehicles, such as UTMAs or UGMAs (Uniform Transfers/Gifts to Minors Act), enable you to save money that your children can use for whatever they want once they turn 21. Depending on your child, that could be a good or a bad thing!

Nonetheless, it offers more flexibility than other options. Still, many parents opt to invest in a 529 college savings plan that’s designed for use on higher education, knowing that in the event their children don’t want to attend school they can still withdraw the funds (though taxes and penalties are attached). At any rate, saving for college is an ideal place to invest your funds once your own future needs have been attended to. How much should I be saving toward my kids’ education? That depends on several factors, but The College Investor has a great post on the topic.

Insurance: While not technically a savings vehicle, another place to consider putting your money is to pay for long-term care insurance and life insurance. Long-term care insurance is coverage that will pay for assisted living, a nursing home, or a rehabilitation facility. It’s becoming increasingly expensive over the years, it’s wise to consider how you will pay for these expenses. A recent report from U.S. News and World Report offers other suggestions for covering the costs of long-term care, including life insurance/long-term care coverage. This product enables you to use the payout for long-term care while you’re still alive instead of having the insurance pay out to your beneficiaries after your death.

No matter what, life insurance is critical if you have dependents who rely on your income. Even if your children are grown and you’re unmarried, life insurance can still offer you a way to cover your funeral and other final expenses as well as leave a financial gift behind for your loved ones.

Now What?

Once you’ve covered all your savings bases, you might consider investing, starting a trust for your children, paying off your mortgage, or funneling more money toward your favorite nonprofit. If you’re not sure what to do next, give us a call! We take a holistic approach to make your money work for you and we often work together with financial planners to create strategies that will help you meet your financial goals. Contact us today to learn more!

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