Americans are generally great at spending money and really terrible about setting money aside for emergencies or retirement. Unfortunately, about 40% of Americans are one paycheck away from disaster. That means that a simple job loss, injury, or even car breakdown will leave a lot of Americans hurting and facing bankruptcy. Most Americans can’t pay off an unexpected bill of more than $1,000. And 36% of Americans have faced an unexpected bill of $5,000 or more in the last year.
Only 16% of Americans have saved more than $200,000 toward retirement while 22% have less than $5,000 put towards retirement. This means that most Americans today will not be able to retire or retire into the lifestyle they might like.
Is It Better to Pay Off Debt or Save Money?
Paying off debt versus saving money is the million dollar question. We address different strategies for saving or becoming debt free in greater detail in Is It Better to Pay Off Debt or Save Money. Everyone’s finances are different and we lay out the pros and cons so that you can best address your unique situation.
But simply paying off debt or saving money does not address the question of how much you need to save each month or in total. Let’s take a look at different options for saving money.
Types of Savings Accounts
At a bare minimum, everyone should have two savings accounts: one for emergencies and one for retirement. Beyond that you can have as many savings accounts as you have money to put in them! Your best plan is to keep your accounts separate and clearly labeled so you know exactly what you have.
Ideally, your emergency savings account should have three to six months of living expenses. Since most of us cannot put aside that much money at once, start with a small goal of $1,000 and build up. ONLY use this money for true emergencies like car breakdowns, unexpected medical bills and the like. Then rebuild the balance as you use it. As you accrue money in this account, you can move some of it into higher interest money market accounts or CDs. Online savings accounts often offer far higher interest rates than conventional brick and mortar banks or credit unions. They are fairly easy to get the money from, usually transferring the money within a day or two
Your retirement account should be a 401K, an IRA or similar plan. Since we are not accountants, we are not advising you on which one to choose. You will want to make your choice by speaking to a financial advisor. The exact amount you need to work toward each year will depend on your age and what you want to do after you retire.
If you’ve come into some extra money and would like some suggestions on what to do with it, check out our article Is it better to pay off debt or save money? If extra money isn’t coming your way, don’t worry. You may be able to squeeze out some savings by following the tips in What’s the Fastest Way to Save Money?
How Much Should I Have in Savings?
The trusted financial website Bankrate offers a breakdown of how much the average American needs to have in a retirement and an emergency savings account by age. Don’t be discouraged if you have not got the amount that corresponds to your age. Most Americans don’t. The key is to start saving your money today.
|Age||Retirement saving goal||Emergency saving goal|
|30||$66,470||$10,368 to $20,736|
|40||$277,728||$12,900 to $25,800|
|50||$596,538||$13,158 to $26,316|
|60||$643,792||$11,598 to $23,196|
If you are good at math, you can fine tune these numbers above based on your real monthly expenditures and then multiply the total by 3 for a two income household or by 6 for a one income household.
How Much Should I Save Each Month?
Generally speaking, financial experts say that you should put 20% of your monthly income into savings. The 50/30/20 budget rule is a popular way to prepare a fast and simple budget. Basically, you spend 50% on necessities, 30% on wants, and 20% goes into savings. (Hint: deposit the savings first before you pay bills or buy that new jacket you’ve been wanting!) Once you have your emergency savings started and a retirement account funded, you can save up toward a vacation or special purchase.
Just always make your emergency fund and retirement account your priorities. In fact you can use the 50/30/20 rule for any free money or bonuses. Put the majority into your retirement and emergency accounts and either spend some of the remainder on bills or you can put it into a special vacation/big purchase or savings account. Whatever you do, try not to fall into the credit card trap. It can be really hard to break free from credit card debt.
Don’t Make Enough Money to Save
If saving even a dollar is beyond your financial means and you cannot make even your monthly minimum payments, there is help available. Credit counseling, debt settlement, and debt consolidation are all options to consider before your declare bankruptcy. If you aren’t certain which one is best for you, Pacific Debt, Inc can help. We are a debt settlement company with an excellent track record and success rating. However, since everyone’s financial situation is unique, debt settlement may not be the best option for you. Pacific Debt, Inc’s awarding winning Account Managers will help you understand your options and choose the best course for you. You can become debt free and start saving money for your retirement and emergencies.
Pacific Debt, Inc
Pacific Debt Inc is one of the leading debt settlement companies in the US and we have consistently been named one of the best for years. This year, we earned two #1 rankings for our customer service. We help you understand your options and whether or not debt settlement is your best option. If it is not, we can refer you to a trusted partner who may be more appropriate for your situation.
If you’d like more information on debt settlement or have more than $10,000 in credit card debt that you can’t repay, contact Pacific Debt, Inc. We may be able to help you become debt free in 2 to 4 years and we’ve settled over $300 million in debt for our customers since 2002.
Once you’ve completed our debt settlement program, your financial situation should start to improve. You’ll then be able to take the money you once had to pay towards your debt, and be able to use it for other purposes like saving, investing, retirement, etc.
Pacific Debt, Inc is accredited with the American Fair Credit Council and is an A+ member of the Better Business Bureau. We rate very highly in Top Consumer Reviews, Top Ten Reviews, Consumers Advocate, Consumer Affairs, Trust Pilot, and US News and World Report.
Pacific Debt is currently providing debt relief coverage in the following states:
Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Florida, Idaho, Indiana, Kentucky, Louisiana, Massachusetts, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, Nebraska, New Mexico, New York, Oklahoma, Pennsylvania, South Dakota, Texas, Utah, Virginia, Wisconsin
* Other states can be connected to one of our trusted partners
For more information, contact one of our debt specialists today. The initial consultation is free, and our debt experts will explain to you all your options.