February 26, 2024


How much should you have in savings? This is an eternal question, and it is the foundation of any long-term financial planning you may do.

There are no hard and fast rules about saving because your income, spending, lifestyle, and financial goals are different from everyone else’s. You can save the rest, but how do you know if your savings are enough for emergencies or retirement? What can you do to increase your monthly savings amount?

Here are some things to consider as you create your savings plan.

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The Role of Savings in Financial Security

Savings provide a layer of financial security for future life events, such as a down payment on a home or preparing for retirement. Your savings can also act as a buffer to make ends meet if you have unexpected medical expenses or lose your job.

Notice a trend here? Financial security doesn’t mean you have to make a big salary, live in an expensive house, drive a fancy car, or take lavish vacations.

Instead, having financial security means you know how to prepare for the future. If you’re living at or below your income level now, you’ll have more flexibility and choice later—possibly when you need it most. When you’re financially secure, you’re in control of your money no matter what life throws at you.

Assess your income and expenses

Your first step towards financial security is to assess your after-tax income and living expenses. Identify all the money that comes from your job, side hustle, and passive income streams. If your current income varies from month to month, calculate your average monthly income.

Next, identify all your monthly expenses. Some of your expenses are easy to determine, such as your mortgage or rent, utilities, car payments, and insurance. Other items, such as groceries and clothing, may not be as clear cut as prices fluctuate due to inflation.

Consider your discretionary spending, such as dining out, entertainment, and monthly subscriptions. Now is an excellent time to eliminate the cost of unused items. For example, maybe you have a streaming service you haven’t watched in months, or you’re paying for a monthly family pass to a local amusement park. You can transfer this money to your savings.

If you find that most of your money is spent on nonsensical items, consider implementing some new rules to limit your spending. For example, you might allow yourself to eat out one night every two weeks and eat at home the rest of the time. Likewise, you might consider stopping your morning coffee and replacing it with a cup of coffee from your kitchen.

Once you subtract your monthly expenses from your monthly income, you should have extra money left over to save. If that amount isn’t as high as you’d like, reassess to cut other costs or find other sources of income.

formulate your financial goals

Just knowing the importance of saving money is not enough to get started. Set specific financial goals to keep your spending and saving on track. Your goals might include paying off credit cards, setting up an emergency savings account, or building a retirement fund.

When you have financial goals, you can prioritize your spending and take responsibility for them. Without goals, it’s easy to lose control of your money now, which could lead to some serious financial problems later.

Define your monthly savings based on goals

Once you have defined your goals and decided what you want, your next step is to develop goals or a game plan for how to achieve them.

Calculate monthly savings for different goals.

Set a specific timeline and amount for your goal, but be realistic and reasonable based on your salary, other sources of income, fluctuating interest rates, and monthly expenses.To help you with your calculations, use SEC Savings Goal Calculator. For example, your goal might be to have a $24,000 emergency fund in two years. At 4% APR, after an initial investment of $1,000, you’ll save just $918.77 per month to meet your goal.

That’s a good goal with a reasonable time frame — if you can afford to save that amount each month. But what if you can only deposit around $300 a month? That’s fine, but be aware that the timeline to accomplish that goal stretches to around six years.

Adjust your monthly savings plan as needed

Once you decide how much money you can save, monitor your progress over the next few months. If you’re not meeting your savings goals, make adjustments. However, don’t be so quick to reduce your monthly savings amount. Instead, double-check your spending to see if you can cut other expenses.

If you can’t find more ways to cut expenses, but still can’t meet your original goal, reduce the amount you save. This changes your goal, but your goal remains the same. However, keep in mind that cutting back on savings will prolong the time it takes to achieve your goals.

How to Budget Using the 50/30/20 Rule

Financial planners often refer to the 50/30/20 rule to set monthly budgets. According to regulations, 50% of the income is used for necessities and 30% for non-essentials. Then you can save the remaining 20%.

The 50/30/20 rule provides specific savings guidelines, but it is not a comprehensive standard rule. If you’re financially limited, it may be difficult for you to use only 50% for basic needs, let alone be able to put 20% of your income into a savings account. Others may find that saving 20% ​​of their income is not enough to achieve their goals.

If the 50/30/20 rule works for you, start with that rule. But it’s okay if that rule doesn’t work for you. You can develop a different strategy if necessary.

Consider emergency funds in your savings plan

Having enough money in a savings account can be a lifesaver in emergencies, such as losing your job, facing medical problems, or needing a major car repair. In fact, consider making an emergency fund one of your top financial goals.

The Importance of Building an Emergency Fund

When you have an emergency fund, you can stay calm to cover unexpected expenses. An emergency fund is just one element of being prepared for the future and taking control of your money.

Without an emergency fund, you may be taking on debt on top of your existing debt to cover expenses. At that point, it becomes much more difficult to pull yourself out of the hole and get back on track financially. If you find yourself in a precarious financial situation, an emergency fund can come to your rescue.

How much should you save for an emergency fund?

It is advisable to save at least three to six months of regular income for a rainy day. For example, if your monthly income is $6,000, you could have $18,000 to $36,000 in your emergency fund.

That might sound like a lot — especially if you don’t have any savings or a real-time paycheck. But this is another reason why goals and objectives are useful for achieving financial security.

If your goal is to save six months of your monthly income for a rainy day, you can decide how long it takes to achieve that goal. This may take months to years. The point is that you are saving money every month. This consistency leads to smarter financial decisions, keeping you calm and in better control when life’s inevitable surprises occur.

The importance of long-term financial planning

Long-term financial planning prepares you for the future. When you adequately anticipate your needs, such as buying a home or retiring, you can develop healthy financial habits that last a lifetime. You feel safe knowing you have enough money to cover life’s ups and downs.

Setting financial goals early on can help. However, it’s never too late to start.

Another financial goal is to protect your family’s long-term needs when you can no longer meet their needs. Term life insurance offers peace of mind knowing that your loved ones will be able to pay for your expenses after your death. Start your journey today with a free life insurance quote.

our editorial policy

Haven Life is a customer-focused life insurance organization backed and wholly owned by MassMutual. We believe that decisions about life insurance, personal finances and overall health can be simple.

our editorial policy

Haven Life is a customer-focused life insurance organization backed and wholly owned by MassMutual. We believe that decisions about life insurance, personal finances and overall health can be simple.

Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life less difficult if they are appropriate for your situation.

Haven Life is not authorized to provide tax, legal or investment advice. This material is not intended to provide tax, legal or investment advice and should not be relied upon. Individuals are encouraged to seek advice from their own tax or legal advisors.

our disclosure

Haven Term is a term life insurance policy (DTC and ICC17DTC in some states, including North Carolina) issued by MassMutual, Springfield, MA 01111-0001, through Haven Life Insurance Agency, LLC Exclusively available. In New York State, the safe harbor deadline is DTC-NY 1017. In California, the safe harbor deadline is DTC-CA 042017. Simplified Safe Harbor Term is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in some states (including North Carolina)) issued by CM Life Insurance Company, Enfield, CT 06082. Policy and add-on form numbers and features may vary by state and may not be available in all states. Our agency license number is OK71922 in California and 100139527 in Arkansas.

MassMutual is rated A++ (Superior; Top Category 15) by AM Best Company. This rating is as of April 1, 2020 and is subject to change. MassMutual Financial Services has received varying ratings from other rating agencies.

Haven Life Plus (Plus) is the marketing name for the Plus rider, which is part of a Haven Term policy that provides additional services and benefits for free or at a discounted price. This rider is not available in every state and may change at any time. Neither Haven Life nor MassMutual are responsible for providing benefits and services provided by third party vendors (partners) under Plus Rider. For more information on Haven Life Plus, visit:

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