KFA Blog

How Much to Save?

Everyone earns a different income.  They also have different financial obligations.  One set dollar amount is not going to answer everyone’s question of “How much should I be saving?”.  Below are some basic guidelines you can follow to determine how much to save:



1. The first rule of thumb is to set aside 3-6 months of living expenses as an emergency fund.  (3 months if your 

household has two wage earners and 6 months if you have a single income.)  You want to be sure that your long-term savings you begin building are not hindered by short-term, unexpected expenses. 

In the next 10-20 years there will be unforeseen expenses, but if you have the proper emergency fund you can allow your long-term savings to continue accumulating even if you have to temporarily stop adding to the account.  A savings account is a good vehicle to use for emergency funds, as the money stays liquid and available when you need it.

2. Now that you have established an emergency fund you can begin saving for longer-term goals, like retirement.  First take advantage of your Employer’s Retirement Plan if this option is available to you. Often you will receive a matching contribution.  That’s free money!

A general rule of thumb is to save 10-15% from each paycheck.  These plans are designed for long-term retirement goals.  If you remove funds before 59 1/2, you could incur penalties and income tax. 

3. Once you have an emergency fund and are setting money aside in your Employer’s Retirement Plan, you can further build additional savings.  

Popular accounts that people use are taxable investment accounts in addition to traditional and Roth IRAs.  Due to various eligibility requirements, working with a Financial Advisor can help you decide what the most appropriate type of account is for your needs and the goals you are trying to achieve. 

Tax implications today and in the future are important to consider.  Your time horizon and risk tolerance will also make a large impact on the type of account you use and where you invest contributions.  Your Financial Advisor can help you choose the most appropriate funds in your Employer’s Retirement Account and other savings accounts, whether it is an interest-bearing account or one with investment options. 

The sooner you adopt a habit of saving, the longer your money can work to achieve your goals!

Kabarec Financial Advisors, Ltd. welcomes the opportunity to speak with you about your savings plan.  Schedule your free consultation today at 847-934-7777.

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