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What is the standard method for figuring out how much to keep in savings?
Posted on 5/10/13 at 8:42 am
Posted on 5/10/13 at 8:42 am
I'm fairly young and pretty ignorant on money matters. I usually take a portion of my paycheck and put it into my savings account. I think I've got a good amount in there (for me personally, it's not extravagant by any means), but I'm not sure I should just keep it growing since there's virtually no interest paid on it. I have a retirement fund through work and have some money in a CD, just to gain some interest on it.
I'm about to start a new job and I'll be making more money, so I don't want to just keep throwing money into savings and watching it sit there. I'd like to open a personal retirement fund (I've heard Roth IRAs are very good, gonna look into that). So my question is, is there some number (not a dollar figure, but some sort of rough estimate based on income or expenses or whatever) to figure out how much you should keep in a regular ol savings account?
Btw I have no debt and will be moving back home while I start this job (I know, that sucks, only temporary though) so will also basically have no bills other than car insurance.
I'm about to start a new job and I'll be making more money, so I don't want to just keep throwing money into savings and watching it sit there. I'd like to open a personal retirement fund (I've heard Roth IRAs are very good, gonna look into that). So my question is, is there some number (not a dollar figure, but some sort of rough estimate based on income or expenses or whatever) to figure out how much you should keep in a regular ol savings account?
Btw I have no debt and will be moving back home while I start this job (I know, that sucks, only temporary though) so will also basically have no bills other than car insurance.
3
Posted on 5/10/13 at 8:47 am to WG_Dawg
I typically use this formula
Posted on 5/10/13 at 8:48 am to WG_Dawg
3-6 months typically and some will suggest up to a year.
In your case though, if shite hits the fan with your job, you have Mom and Pop to feed you, shelter you, and you have no debt. So, in theory, you really do not need anything in way of an emergency fund. I know in your mind it may stink to move back home, but you have the perfect situation to sock away as much money as possible now. Fully fund a Roth IRA, max out your 401k, save for a house or whatever your future goals are.
I am envious of your position.
In your case though, if shite hits the fan with your job, you have Mom and Pop to feed you, shelter you, and you have no debt. So, in theory, you really do not need anything in way of an emergency fund. I know in your mind it may stink to move back home, but you have the perfect situation to sock away as much money as possible now. Fully fund a Roth IRA, max out your 401k, save for a house or whatever your future goals are.
I am envious of your position.
Posted on 5/10/13 at 8:49 am to Vols&Shaft83
Posted on 5/10/13 at 8:55 am to OnTheBrink
quote:
OnTheBrink
Yeah I was going to use the next 6 months or so living at home to just save a bunch of money then look at getting a house I guess. I just feel like I'm doing something wrong putting a bunch into savings and it just sitting there. I just assumed I should be putting it somewhere else. But I guess since in the next 6-12 months I'll likely be making a major purchase it's not that bad.
Posted on 5/10/13 at 8:57 am to WG_Dawg
In such a short time frame, I would not worry about it. If it were a couple of years or something, I'm sure the board would have some good ideas, but 6-12 months, there's just not a lot of options.
Posted on 5/10/13 at 9:19 am to Vols&Shaft83
I use this divided by the Drake equation, then add 7
Posted on 5/10/13 at 9:26 am to WG_Dawg
I maintain an emergency fund in my savings account that is enough to last me 1 year. I am working to shave that down though. I have a big purchase coming up in 3 months that I am stashing all of my money in savings for, so I don't spend it idiotically, nor lose it to the markets. Really, I treat savings as a place to hold money for an emergency, and a purchase that will occur within a year or so.
I have not made a science out of how much to keep in savings. Although I have over thought this on many occasions, accurately illustrated by Vols' image that he posted:
I have not made a science out of how much to keep in savings. Although I have over thought this on many occasions, accurately illustrated by Vols' image that he posted:
quote:
Posted on 5/10/13 at 12:40 pm to OnTheBrink
quote:
3-6 months typically and some will suggest up to a year.
How liquid does this need to be?
Those of you keeping a year's worth of cash in a savings account earning .5% could be missing out on significant gains.
My advice to the OP: find out what your company matches to your 401K. If they match 8%, put in at least 8%...more if you can afford it. Along with that, you'll want to max out your Roth contributions. For 2013, the max you can contribute to a Roth IRA is $5500.
With the Roth, you can take out your contributions tax free in dire emergencies, but that should be avoided. Your gains can't be taken out without penalty until retirement age.
This post was edited on 5/10/13 at 1:00 pm
Posted on 5/10/13 at 1:23 pm to dewster
I had always kept 6 months. In 35 years, I have never had to use it other then buys an ac unit and a washer/dryer, which still was good. Also, it is always very good to have a disability insurance. Saved my arse big time to were that and SSD is very nice income each month.
Now, if the OP is married with kids, save as much as you can.
Now, if the OP is married with kids, save as much as you can.
Posted on 5/10/13 at 1:59 pm to fishfighter
Thanks for the advice all.
If I was married with kids I wouldn't move back in with my mom 27 and single. I really hate having to move back home, but there's really no reason not to. I'll be working about 5 miles from the house and I can just save a ton of money. Just have to endure for a little while.
quote:
Now, if the OP is married with kids, save as much as you can
If I was married with kids I wouldn't move back in with my mom
27 and single. I really hate having to move back home, but there's really no reason not to. I'll be working about 5 miles from the house and I can just save a ton of money. Just have to endure for a little while.This post was edited on 5/10/13 at 2:02 pm
Posted on 5/10/13 at 2:09 pm to dewster
quote:
Those of you keeping a year's worth of cash in a savings account earning .5% could be missing out on significant gains.
This is why I disagree with the notion.
I think keeping a month or two liquid and readily assessible is ideal, then you start putting money aside in either a Roth or careful selections in a taxable account (to minimize taxes).
Posted on 5/10/13 at 2:18 pm to Siderophore
quote:
I think keeping a month or two liquid and readily assessible is ideal, then you start putting money aside in either a Roth or careful selections in a taxable account (to minimize taxes).
I'm young and stupid, but I think that's good advice. If you need, you can get to your cash usually within a week. If something catastrophic happens you can raid your Roth if you have no other choice.
This post was edited on 5/10/13 at 2:21 pm
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