It goes without saying that you’ll feel better about your financial circumstances when you have an adequate amount of money in savings. However, there’s a burning question you must answer: how much money is enough money?
While this varies from one person to the next, there are some basic questions you can answer to provide yourself with the direction you need.
1. How much money do you currently have in your savings account?
Once you know this number it’s easier to decide how to set short and long-term savings goals. Maybe you have all the money you need in your account. Or perhaps you’re starting from zero or close to it. No matter what your current balance looks like, knowing its value is critical to laying out the path forward.
2. What are your plans for the money?
If you have a set plan for the money — such as making a specific purchase — you may know exactly how much you want to save. Conversely, if your account acts more as a safety net, there’s more flexibility.
It’s okay if you don’t have a plan for the money. Just make sure you plan accordingly.
3. How much money do you need to cover your living expenses for one month? Three? Six?
This is a good question to answer if you have plans for using your savings account in the event of an emergency. Review your budget to pin down exactly how much you spend every month. Then determine how much money you want to save to feel financially comfortable in the event of an emergency.
4. How much can you regularly add to your savings account?
The answer to this question helps you place a timeline on your goals. The number may vary by month, and that’s okay. You simply want a basic idea of how much you can set aside in your savings account every month.
5. Do you ever spend money in your savings account?
If the answer is yes, you must account for this when reviewing your account and setting goals. How much have you spent, on average per month, over the past six months? You can then compare this number against what you typically save.
There’s no right or wrong answer as to how much money you should keep in a savings account. The main thing to remember is that you want to be comfortable with the amount. You’re seeking peace of mind.
What are your thoughts on this? Have you reached your savings account target number, or do you still have some work to do?