You all know that saving is essential to ride out during financial emergencies, but you do not know how much money you should have set aside by a certain age. A rule of thumb says that you should have a six-month worth of your living expenses in your savings account.
The question is if that money is actually enough to meet all of your expenses. As you grow, your expenses also rise. Further, you have to put aside money for your retirement account. You cannot reach your saving goal just by stashing away a small chunk of your income without realizing your needs and goals.
First of all, when it comes to saving money, you will have to contribute to different categories: emergency cushion, retirement funds, and money for pursuing your interests and dreams.
You need to understand that each has a different lifestyle and goals, and therefore, each will have a different size of savings. For instance, a bachelor has a different lifestyle and needs than a married couple. This is why there is no one-size-fits-all saving amount. Here is how you can save at every age:
Saving for an emergency cushion
You will dip into emergency corpus when life throws a curveball. It should ideally possess three to six months’ worth of expenses.
The size of the emergency cushion should increase as you age. For instance, the money you must have set aside at the age of 40 should be more than that you had at the age of 30. This is because of the rise in inflation.
However, once you reach your retirement age, it will naturally start declining. Make sure that you carefully assessed your needs to decide on the size of your emergency corpus. For instance, if you rent a flat and do not have family and own vehicle, you will have a much lower amount in savings than those who have family and are on a mortgage. Of course, you cannot quickly build up an emergency cushion of the six-month worth of your living expenses.
- A rule of thumb says that you should take a note of all of your expenses to figure out how much you are left with at the end.
- Calculate what amount it makes to your total salary and try to set aside that particular amount every month.
- Since variable expenses vary from month to month, so if you have saved a certain amount of money on them in a particular month, try to transfer that portion to your emergency account.
Saving for your retirement
The sooner you start, the better. Do not think that it is too early to set aside money for your retirement. Over 60% of people find the scanty amount in their account by the age they retire. It is never too early. Inflation is continually rising, and low wages often make it hard for you to catch up in just a little time. So start saving money today for your retirement.
Start with a percentage that is manageable for you and then keep increasing every year by one to two per cent. Aim to make it to 20% of your salary.
- By the age of 30, you should have your full income in the retirement account, and by the age of 40, it should be three times of your income.
- By the age of 50, it should be five times, and by the age of 60, it should be seven times.
If you have this much money saved in your retirement account, you will be able to live off your retirement funds smoothly.
Saving for your other plans, interests and dreams
There are a lot of expenses waiting to burn a big hole in your pocket. For instance, you will need to buy a car, house, spend on your wedding and children and much more. It is not possible to save for all of them simultaneously. You should set priorities. For instance, you will either save for a car or for a deposit of a mortgage.
- If you are saving for a car, you will have to arrange a down payment between €10,000 and 30,000.
- If you are saving for a house, you should have between €20,000 and €50,000 as a down payment.
Building an emergency cushion will not be enough. You should keep setting aside for your retirement and other big expenses. This is a gradual process, and you will be able to speed it up if you are free from all types of debt obligations. Just because you are successfully stashing away money, it does not mean that you will never need to borrow money. When you have a cash shortage, you can take out quick loans. In case you have a bad credit rating, loans for bad credit will be an ideal option.