Frequently asked financial questions are questions that I’ve seen pop up over and over again. I thought I’d take the time to answer them in this new Series. Today, I’ll answer the age old question, How much do I need to have in savings?
So each post will have a short quick answer to these frequently asked financial questions followed by a longer more detailed answer.
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How much do I need in savings?
Pretty much every personal finance expert out there will recommend you have some savings, they may call it an emergency fund, a f*ck off fund, a travel fund, whatever. But you’re probably wondering, how much I need to have in savings?
Depends on what you are saving for, if it’s a specific savings goal like a car, look at the price of the car you want.
If you are saving for an emergency fund, the average of your last three emergencies is a good goal to start with savings wise.
If you are not sure about the average cost of your last few emergencies than start with $1,000. Once you hit that goal, set a new one to be able to cover multiple emergencies (I like to have enough for three), because when it rains it pours.
If you still struggle with setting aside money for savings, then I recommend using Chime to start saving an emergency fund for you. Chime works by starting a spending account (takes 5 minutes) and opting into the automatic savings plan.
Every time you use the Chime Debit Card it rounds up your purchase to the nearest dollar and puts in in savings. Right now they also offer a 10% bonus on those savings. All those withdrawals add up over time. Chime is free to use, with no monthly fees. With Chime, you end up saving money without having to think about it.
Longer Answer to How Much Do I Need to Have in Savings:
Having savings ensures you have choices. More money doesn’t buy happiness, it buys opportunities. So if you have no savings you need to decide on the kind of opportunities you’d like to see.
While I would recommend first saving up an emergency fund or a buffer for your bank account, if you have other more pressing issues (like a car that is about to bite the dust), then you might start with a different savings goal.
Once you decide what you are saving for, decide on the amount and write it down. If you are struggling to come up with a savings goal or amount, then I recommend setting a goal of $5,000. It’s enough to cover a few emergencies, or a car down payment, or your deductible for health insurance.
How to Build Savings
Once you have a savings goal you need to decide how you will accomplish the goal. I’ve already mentioned Chime as one way to kick start your savings, but there are lots of other ways to save and savings challenges.
The $5 Savings Challenge
Whenever you use cash, any time you have a five dollar bill, set it aside for savings. You’d be surprised how much this can add up over time.
The Savings Game
Start with pennies, each day save the same number of pennies as the day. So day one you save one penny, day two you save two pennies. Change the denomination each month, from pennies to nickels, to dimes, to quarters, to dollars. After 5 months you’ll have saved over $600.
There are tons of variations of this game, it might be dollars every day for a year, or quarters, whatever it is, just keep on it and all your savings will add up.
Automate Your Savings
I found automating my savings to be most successful. To set up my automation I opened a savings account with Chime and had a specific amount from my paycheck deposited into the savings account. I never saw it hit my checking account and so never ended up spending the money.
When I first started I would have $25 per paycheck put into the account, then I worked on increasing the amount until it hit $100 per paycheck.
If you want you could set up several automations to save for multiple goals. However, be careful if you spread yourself too thin, it will take a long time to reach any of your goals. It might be best to focus on one savings goal at a time.
Wrapping it Up with a Bow on Top
- You need to have savings, savings = options.
- If you don’t have a specific savings goal, start with $1,000 with an ultimate goal of $5,000.
- Struggling to save? Try using a tool like Chime.
- If just saving is too boring, try a savings game or challenge.
I hope this series of frequently asked financial questions will help you to figure out how much you should have saved. If you have any questions about, How much do I need to have in savings? let me know in the comments.
Read more from the Frequently Asked Financial Questions Series