How much of my monthly earnings should I try to put away in a savings account each month? If it’s recommended to put 15% of one’s salary away in retirement savings, what does that mean for putting money away in a regular savings account?

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Posted by Molly C (MONEY FORUMS: 5, Answers: 0)
Asked on November 16, 2015 12:14 pm
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My goal is to save up and have 6 months of living expenses in a regular savings account. I also have an emergency savings account. That is how I came up with my monthly savings goal.
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Posted by Eva Baker (MONEY FORUMS: 0, Answers: 14)
Answered: December 17, 2015 9:43 pm
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Hi Molly, this is a great question. There seems to be a lot of guidance for goals such as retirement, but not a lot of guidance on tying it together.

In addition to retirement people need to save for specific goals, including a cash reserve or emergency fund. Sometimes these goals need to take precedence over retirement savings. For example, it may be necessary to reduce retirement savings while accumulating a down payment on a house.

There are a lot of different approaches to budgeting and saving, the key is having one which works for you. This is a must, otherwise it won't stick - it doesn't matter how great the plan is if you cannot or will not stick with it. That being said, the key to saving a sufficiently large portion of your income is living on a sufficiently small portion.

I advocate the 50/30/20 budget which comes from the book "All Your Worth". The book is dated in many aspects but the budgeting/savings aspects are awesome. In this budget you live on 50% of your net income, spend 30% on discretionary expenses, and save a total of 20%.

The 50% to live on is basically the expenses which would not go away if you could not work for six months. Rent, food, heat.

The 30% discretionary is not just money you blow, but how you live above that which you could cut back to in an emergency. This would be vacations, dining out, and even groceries above what you would have to spend if you were not working.

The 20% savings is all inclusive, retirement, building an emergency fund, other financial goals. It is up to you to decide priority, but the basics of an emergency fund retirement, and, if appropriate, a house down payment should all be given some allocation.

This savings would not include saving for a vacation! That is a discretionary expense and comes out of the 30% discretionary bucket!

Lastly, how to structure your basic savings has some, but not a lot, of leeway. Any monies you could need or plan to need should be safely in a savings account or money market fund. Remember that FDIC insurance on bank accounts is capped at $250,000 per depositor, so if you are going to go over that amount in savings you need to split it up between banks. I would personally split it up at a lot lower level, not more than about 50k in any one bank.

I know that's a lot of info at once! Use what seems helpful, manage your expenses so you can save a total of 20% for your long-term goals, and don't put it all towards retirement unless that is the only thing you want out of life!
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Posted by Peter Neeves (MONEY FORUMS: 1, Answers: 59)
Answered: December 15, 2015 1:33 pm
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First, you should strive to save the maximum amount your company will match for your 401K or retirement savings plan (as this is at a 100% return).
If you are able to max out this amount you should then strive to put away 3-6 months living expenses into an emergency money market or savings account. Next, you should use any savings to pay off any debts you have.
Finally, you should strive to put away 15% across all retirement savings vehicles, then allocate any additional savings into a fund for other emergencies or fun (vacations, college, cars).
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Posted by Carley Stein (MONEY FORUMS: 6, Answers: 2)
Answered: December 6, 2015 2:28 pm
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Most of my family's bills are annual rather than monthly, so we put aside enough money to be sure that we can cover those. We also set aside a few hundred for car and home repairs and maintenance which tend to be irregular spending as well.

We don't think of these funds as savings so much as future spending.

Once you're taking care of your near term needs, and super-long term needs (like investing for retirement) it's smart to focus on mid-term goals like a healthy sized emergency fund or a fund for a down payment on a house, or just a general opportunity fund. I would put as much as you reasonably can towards those goals. 10% is a great number to shoot for, but as your income grows you might be able to supercede that amount.
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Posted by Hannah Rounds (MONEY FORUMS: 0, Answers: 17)
Answered: November 23, 2015 11:18 am
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Strive for 10 percent or more. If you can't do that, start at one percent and increase as you are able.
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Posted by Melanie Lockert (MONEY FORUMS: 0, Answers: 65)
Answered: November 16, 2015 3:05 pm