There is no need to remind you of the importance of setting aside money, but when you feel ready to stash away money, a question arises about how much of your income you should save. However, experts suggest that your emergency cushion must be able to cover expenses for at least three months.
However, this is just a saying, as it depends on your saving goals and your financial capacity. People who are living paycheque to paycheque will not be able to save this much. Financial experts generally emphasise saving money, so you do not have to take out 24 hour loans in Ireland when unforeseen expenses crop up.
What is your savings goal?
Before you figure out the amount you should lay aside every month, you should ask yourself the savings goal. You simply want to have enough funds for emergencies, or you want to save for the down payment of your car or a house. It is vital to have a savings goal as it helps you keep going.
In order to stick to your saving habit, you must know why you are doing it. The goal you set will keep you motivated. However, you must set realistic goals. For instance, if you are living paycheque to paycheque, you will be able to save little money pot after cutting back on your expenses, so it does not make sense to set aside money for the down payment of your car.
Otherwise, you will lose track and give up in the middle. In fact, you will need to track your savings to ensure that the goal you have set will be met on time. It means you may take some time to exactly nail your savings goal.
Ways for calculating your savings needs
By deciding how the small amount you need to meet your savings goal, you can create a plan for budgeting. After creating a budget, you can get to know how much exactly you can set aside each month for your goal. Here are some tricks you should use to calculate your savings:
- Create a budget
First off, you need to check your living expenses to know your monthly spending. Since they may vary from month to month, you should determine the average spending for at least the past three months. Even if it falls within your monthly income, you should see where you can cut back on your expenses.
If you are living paycheque to paycheque, try to create a lean budget. This will just include your essential expenses. No discretionary expenses unless your income grows or you opt for an additional income source. You will probably be able to save 10 to 20% of your income and transfer this amount to a savings account.
If you earn a good amount of money, you can create a budget using any of the methods: 50/30/20 or 60/20/20. It depends on your necessities and saving goals. If you have figured out that you need to be saving rigorously, you may need to focus on saving on essential expenses.
For instance, you can use public transport instead of using your own vehicle. You can buy groceries in bulk and only those items that you need. Take advantage of store sales when you are to buy apparel or footwear.
- Adjust according to your comfort
Once you have identified which budgeting method will suit your needs, you can start setting aside money for your goal. However, you will have to keep tracking your needs. Expenses cannot be fixed even if you are just living off a lean budget.
Therefore, it is recommended to make some adjustments according to your comfort. For instance, if you use the 50/30/20 budgeting rule, you may be required to make it to 60/20/20 or sometimes 50/20/30. It all depends on your current financial situation and your saving goals.
- Use savings calculator
When you are clear about your savings goals, you should use a savings calculator to get an idea. You will have to provide details like saving goals, initial investment, monthly contribution, starting balance, ending balance, and rate of interest.
You can use various savings accounts, but you must choose the correct type of account to get sufficient interest.
What other things do you need to do to keep setting aside money?
You may have figured out a certain amount of money that you should save every month, and you must have been cutting back on your discretionary expenses to hit the ground running, but this is not enough. There are certainly other things you should look at:
- Pay off debts
If you have debt, you will find it harder to achieve your saving goals. Therefore, your first priority should be paying off debts. Even if you just have one debt, for instance, small money loans in Ireland, you should give priority to debt payments first. As you are paying interest on top of the principal, you should try to clear outstanding dues as soon as possible.
- Use cash as much as possible
Since you will have to ensure that you keep sticking to your savings goal, you should rely on cash for all of your transactions. You can use credit cards once in a while as they can help build a credit score and gain some rewards but try to use cash as much as possible.
It is easy to record all transactions you meet with cash, and then you can quickly evaluate what adjustments you will have to make with it.
The bottom line
Saving is intrinsic, but it is crucial how small amount of money you should stow away. Look over your expenses and then check the scope for cutting down on your expenses. Try to live off a lean budget if you live paycheque to paycheque. Pay off all your outstanding debts and keep adjusting your budget according to your spending. If you anyhow need to take out a loan, try to have a scope for the payment in your budget.