6 signs you're saving enough money
How much money is enough?
The number varies by person, but it's always a lot.
In fact, pretty much everything in personal finance varies by person, from how much you need to live to how much you should be saving.
Below, find six guidelines that indicate you're probably saving enough, no matter what that means for you.
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You have savings goals, and you've priced them out
The first step to saving "enough" is knowing how much "enough" is, and that varies by savings goal. Just socking away money with no clear end date or amount or use isn't very motivating, and generally isn't very effective.
An effective savings goal has a purpose, an amount, and a timeline. For instance:
• Purpose: 20% down payment for a $500,000 house, based on research on home prices in my area
• Amount: $100,000
• Timeline: 5 years
• How much I need to save: $20,000/year; $1,666/month
It's impossible to know if you're saving enough until you give "enough" a number.
You're paying yourself first
For many people, savings is an afterthought. Bills first, then savings.
The danger with this point of view is that it's easy to run out of money to save. What if your bills are higher than usual? What if you decide to spend a little more on something fun this month, and use that not-yet-saved extra cash in your checking account?
One way to avoid this challenge is to treat your savings like any other bill. "If you want to be rich, all you have to do is make a decision to do something that most people don't do," writes David Bach, who became a millionaire by age 30, in his book "The Automatic Millionaire."
It's to pay yourself first.
Now, paying yourself first assumes you have some money to save, and you aren't living month-to-month without wiggle room. If you are, there are two solutions that are easier said than done: Reduce your bills to spend less, or increase your income to earn more. And once you do, that money goes straight into savings.
You're increasing your savings regularly
If you can cover your necessities, afford things you want but don't need, and stash away funds for the future, you're doing something right. In fact, Pew Charitable Trusts found that 33% of Americans have no savings at all.
And if you're increasing your savings, you're in an even better position. When Bach, who saves 20% of his income, started setting aside money in his mid-20s, he could only afford to save 1% of his earnings. Then, he gradually increased the percentage.
Many retirement plans offer a similar feature: You can select an automated savings increase at regular intervals. Or, you can manually bump up your savings rate each time you get a raise or a bonus. Either way, if you're cognizant enough about your savings rate to keep it rising, you're going to find yourself in a good place.
When you get a windfall, you put some in savings
No one is saying you can't have fun with your bonus, or inheritance, or tax refund. But if you're thoughtful enough to put at least part of unexpected cash into savings, you're making some smart choices.
You have more than one type of savings account
Putting money under the mattress won't cut it. We're lucky to have all manner of savings accounts at our fingertips: IRAs and 401(k)s for retirement, 529s for college tuition, even high-yield online savings accounts.
Some of these accounts are invested. Some are tax-advantaged. Some earn interest (even if it's only a little).
Stretching your savings across multiple accounts has a few different benefits. Firstly, it keeps you from accidentally (or accidentally-on-purpose) spending money meant for one goal on another. It also means you're being thoughtful about your savings, and caring enough to think about which types of accounts might be most beneficial. Lastly, when some of your accounts have annual contribution limits, like the IRA that's capped at $5,500 a year, you can save more money overall.
You aren't letting yourself get overwhelmed
There's no point in freaking out.
If you've set a goal and given it a number, if you're paying yourself first and increasing your savings regularly, if you're putting some of your windfalls into savings, and if you're taking advantage of the different kinds of savings accounts available to you, you're doing a great job.
If you decide that, based on your goals, you need to save more in order to have "enough," you're in the perfect position to start.
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