Saving money for a rainy day might not seem very important when skies are sunny. However, if you have secured a home loan and are now paying a mortgage, now is the right time to begin to save for those rainy days. Even if the rain never comes, you will have the funds you need to help your children pay for a quality education or travel the world (just to name a few of thousands of scenarios in which having a hefty cushion of savings can improve your life). But how do you know how much you need to save in order to be financially stable, in case those rainy days do come? Here’s what you need to know:
Short Term Saving Goals
In the short term, most people will want to have at least three months of expenses in their bank account. This number will vary, obviously, depending on how much you spend during a month, i.e. if you spend $2000 a month on groceries, mortgage, utilities, and gas, you would want $6000 in savings. It could further change factoring in whether you will adopt a “rainy day” mindset or continue spending normally.
For example, you may make more than enough money now to pay your mortgage, grocery, utilities, and various other bills and have plenty left over for fun. However, if you were to lose your job, would you reign in your spending to just the necessities? Or would you want to be able to continue living your life as you did while you had a job? Most people are willing to reign in their spending and live a more frugal lifestyle while they search for a new job.
Of course, this short term saving goal isn’t intended just to be used if you lose your job. This money can help pay for unexpected medical bills, repairs to a vehicle, repairs to your home, etc.
Long Term Saving Goals
Saving for retirement is just as important as saving for short-term financial issues. In general, most people will be retired for about twenty-two years. That means you will want twenty-two years of living expenses available to you. Of course, your retirement plan from your career will take care of a huge chunk of these expenses, but it is always a good idea to supplement your retirement fund with money you have managed to save.