How Much Money Should You Really Save Every Month?

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How Much Money Should I Really Save Every Month? This is one of the common questions I often get from my readers and followers. Actually, there’s no upper limit on how much money should you really save.

However, there’re very strong reasons on why you should save a considerable amount of money from your income.

To answer these important questions, let’s see some of the statistics that’re available from various reliable sources.

Savings Statistics in USA

By May 2020, during the peak of the Covid-19 pandemic, average savings of an American household stood at whopping 33 percent of the total income. Part of this came from one-time payments of $1,200 to households and individuals.

The US government reportedly doled out $3 trillion as benefits, according to a report by newswire, Reuters. These savings were possible due to severe drop in spending during the pandemic.

However, this hasn’t always been the case, as a report by Bankrate.com reveals. The report published by Bankrate.com in December 2018 shows, an average American household has a median savings of only $8,863.

People above the age of 55 years have the highest savings rate while the millennial generation has the lowest.

A chart published by US News based on average savings of various age groups, household and individuals doesn’t point a rosy picture either. Instead, it clearly shows that most Americans lag in their savings.

There’re some other shocking details in the 2018 Bankrate Financial Security Index.

A shocking 23 percent of American individuals and households do not have savings that can help them survive without any income. And only 29 percent of the population have savings that can last for six months or slightly more, if their income stops.

Another 22 percent of American individuals and households can survive for fewer than three months on their savings while 18 percent can live for three to five months on money they’ve stashed away, should they lose their source of income.

Nearly 40 percent of all Americans would have to borrow money if they face any emergencies and costs exceed a mere $1,000, says another report by Bankrate.

And only 52 percent of Americans have more emergency savings than their credit card debt, finds yet another report by Bankrate.

These are absolutely dismal figures by any standards or yardstick, considering the US is the largest economy in the world.

In stark contrast, the median savings rate for individuals and households in India stood at 30.1 percent in 2019, despite a drop in the previous year. And India ranks only as the fifth largest economy in the world.

What This Means for You?

As a consumer in the US, you would definitely wonder what the above figures mean for you. And what do they imply.

Without hesitation, I can state that such low savings rate can play a havoc with your life, land you in financial crises and lead to acute shortage of money for retirement.

Obviously, these are problems anyone would love to avoid. After all, who wants to live in penury, especially in old age?

Therefore, the above figures are sending you a very clear, loud and strong message: Step up your savings and investments. This brings us to the first question, how much money should you really save every month?

In this article, I will try and respond to this all important question.

How Much Money Should You Save Monthly?

Realistically speaking, you should try and save between 20 percent and 30 percent of your income every month. And that’s a recommendation most financial advisors across the US would make.

Understandably, for most Americans, a figure of 20 percent to 30 percent would appear like a distant pipedream or even impossible.

But the good news is, you needn’t arrive at this figure immediately. Instead, you can strive to save between 20 percent and 30 percent of your earnings over a period of time and by practicing strict financial discipline.

There’re strong reasons you should aim for this magic figure for savings. Here’re these reasons.

1. Time Value of Money

Time Value of Money or TVM is a concept that most people miss. In simple words, TVM means that a Dollar in hand right now is more valuable than the same amount after a year.

That’s because inflation, drop in bank interest rates and other factors lower the value of you money over a period of time.

For example, stash away $100 in a jar and another $100 in a bank account. After a year, you’ll find that the money you kept in the bank has gathered some interest, let’s assume 4.5 percent.

This means, instead of $100, the bank has to pay you $104.50. At the same time, the money you kept in the jar remains just $100.

If the TVM of your money drops by a mere three percent, the $100 you kept at the bank will buy you goods only worth $97.

But with the $104.50 you get from the bank, you’ll spend only $103 for the same goods and yet save $1.50. This means, you stand to gain.

The same axiom holds true for savings. The money you save and invest has to fetch higher returns than TVM depreciation.

2. Inadequate Funds for Retirement

Here’s one more shocker. About 64 percent of all Americans don’t have enough money for retirement, states a 2019 report published by Yahoo Finance.

There’re several reasons for this unfortunate phenomenon that strikes ageing people. And this also implies, you might have to work well beyond the average retirement age of 65 years, to eke a living.

Retirement plans and health insurance aren’t merely enough for those golden years, when you’ll have no regular source of income such as a salary.

And Social Security isn’t always adequate to cover any extra expenses or emergencies that could strike the elderly. A large section of the population can’t afford to buy a retirement home too.

The prospect of working lifelong is indeed unpleasant and frightening. Because, it’s often difficult to find gainful work after retirement since the job market is extremely competitive. This simply translates as saving money for a comfortable retirement.

3. Absence of Emergency Fund

As I mention above, majority of Americans would have to borrow money in an emergency where they require more than $1,000.

The 2020 Covid-19 pandemic and its economic aftermath caused millions of Americans to file for unemployment benefits. Countless businesses closed shop forever and filed for bankruptcy.

There’re no guarantees or assurances that such calamities won’t strike the world again. Indeed, the fallout of the Covid-19 pandemic is likely to be felt well beyond 2021. Therefore, the absence of an emergency fund can land you in serious trouble.

Anyone that’s borrowed money before will definitely know it can be very embarrassing. Also, there’re no guarantees that a relative, friend or coworker will oblige by lending the full or part of the necessary amount.

Saving between 20 percent and 30 percent of your monthly earnings could help build a healthy emergency fund. This means, you wouldn’t have to borrow money or overspend on a credit card.

How to Start Saving Money

So how does one start saving between 20 percent and 30 percent of earnings without disrupting your existing lifestyle? Actually, there’re several easy ways to save money.

1. Make Savings Your Habit

There’s no need to immediately stash away a considerable portion of your income, if you’re just beginning to save. Instead, start by putting aside five percent to 10 percent of your earnings.

And if you’re already saving some money every month, step up the amount slightly. Over a period of months, you’ll find it’s easier to keep away more and more money before arriving at the figure of 20 percent to 30 percent of income every month.

2. Use the Magic Formula

Maybe you’ve heard about this magic formula on how to save more money earlier. It says: “Income minus savings equals spending.” That means, the first thing to do when you get the paycheck is deduct the amount you wish to save.

This leaves you with money for expenses. Try and gradually increase the amount of money you save before spending. This works very well since you know how to budget and save money, you have to meet personal and household expenses every month.

3. Get Rid of Credit Card Debt

Over 47 percent of American adults or more than 120 million people in the US have credit card debts finds a study by CreditCards.com and reported by CNBC.

The study also finds, majority of consumers added an extra 23 percent on average on their credit card debts during the Covid-19 pandemic in 2020.

Credit card debt comes with a high Annual Percentage rate (APR) that can go as high as 20 percent or even up 38 percent.

That happens when you fail to settle the full amount when the bill arrives in your mailbox or delaying repayment for any reason. Instead, step up credit card payments to bring the debt to minimum or even zero. That’s one of the best ways to save money.

4. Finding a Side-Gig

Finding a side-gig or part-time work is perhaps the best favor you could do for yourself. Not only does it allow you to use time gainfully, you can also make some extra money for stepping up your savings and investments.

A side-gig can be anything from online data entry or transcriptions to blogging and vlogging. You can find excellent part-time and work-from-home jobs online, depending on your educational qualifications and skills. Such jobs allow you to work with flexible hours. And payment is on hourly basis.

5. Start with Small Investments

And finally, the best way to save money is by making small investments. Maybe you’re unaware that it’s possible to launch your investment journey with as little as $5 only. There’re several amazing apps available for free for your smartphone.

All you need to do is register and start investing anything from $5 and upwards. Some of these apps also give a free stock of some company, depending on your membership level and value of investment.

With these apps, you can invest on stocks, Exchange Traded Funds and Mutual Funds, commodities, currencies and cryptocurrencies. Over a period, these small investments add up to a large amount.

More Ways on How to Save Money

There’re quite a few easy ways to save money. One of them is to cut on unwanted and frivolous expenses. The other is buying with discount vouchers and free shopping coupons from online survey websites. You can also find free samples and freebies online to save money.

Using up all your loyalty points from credit card, debit card, stores and airline frequent flyer programs are also one way to slice off a few Dollars off your expense. And above all, eliminate all those useless subscriptions that you might have

Buying at thrift stores is one more best way to save money. Or you can trade used garments at consignment stores anywhere in the US.

If you simply look around for ways to save money, you’ll come across countless and rather practical ways too. At the same time, do not fall victim to any get-rich-quick scams that’re rife on the Internet.

Wrap Up

The above facts and figures would clearly indicate the important of saving more every month. And some of the ways to save money. Using this information and money saving tips, you can begin your big savings journey in 2021.

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I'm very passionate on writing about personal finance, economy, helping people save money and making you better. I've worked closely with The Peninsula, Qatar Tribune, Pattaya People, Al Jazeera and other major news networks around the world. Member of Amnesty International, Reporters Without Borders & other organizations.

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