I just interviewed with Kiplinger about how much you “should” have in your savings - this is what i told them:
Let me shout this from the rooftops:
Saving is an action, not an amount. 🔈🔉🔊
I just interviewed with Kiplinger about how much you “should” have in your savings. This is what i told them:
The official CFP-rule-of-thumb is 3-6 months’ living expenses. I hated saying this to clients because they would feel defeated before they even started. It’s even worse when an official article from an official financial publication asks an official Certified Financial Planner™ how much you should have.
The average cost of an emergency in the US is $400 and 1 out of 2 Americans cannot cover that emergency. 2 out of 3 Americans don’t have $1,000 in their bank accounts. I tell clients to start with milestones. You can have the big goal number in mind, but first, start by establishing a savings floor.
A savings floor is the amount you’re committing to always have in your savings. If you dip below this amount, it’s your #1 priority to get back to it. This way, no matter what happens, you will always have a cushion.
As this savings floor gets easier to maintain, you raise it. Maybe you go from $1,000 to one paycheck’s worth or one month’s rent. Then you can work towards having one month’s living expenses, and then eventually that 3, 6, or 12 months’ savings.
Speaking of, on the flip side, I have seen financial advisors tell clients who have “too much in cash” that they need to invest any cash they have beyond 3-6 months’ living expenses. Besides the fact that most financial advisors get paid for every dollar that they are investing on behalf of their clients (usually 1-2% of the account balance), this just doesn’t take into account your WHY for saving.
I’ve had clients who have inconsistent income, lost their job a few years ago, have multiple family members as dependents who say they sleep better at night knowing they have 12 months’ living expenses worth of savings. Don’t let anyone tell you what you need to do if it’s not in line with what you actually need to do.
Now, back to savings is an action, not an amount.
I had a client who wanted to start setting aside money into a retirement account. I told her, “why don’t we start with $50/month?”
She was nervous about the amount, she wasn’t sure if she could maintain it. I said, “that’s okay, if it starts to feel hard after a few months, we adjust the amount, or you can just stop.”
Several years later, she was setting aside $500/month into her retirement account.
The act of building a savings habit matters more than reaching your savings “goal.” Goals are good to have, but only if they motivate you to maintain a habit.
Goals also don’t have to start off as a number - you goals can be:
✅ To always have enough savings to be able to say yes to a last minute trip
✅ To have enough savings so that I can quit my job and take my time searching for a new one
✅ To have enough savings so I can take care of $1,000 emergencies with ease
✅ To have enough savings so I can comfortably support other family members
Ask yourself what the meaning is behind the number, the true goal you have, the true feeling that makes your body feel calm and excited.
I also gave the Kiplinger reporter some nice tips around setting up auto transfers within your direct deposit if that’s an option, setting up a savings account at a separate bank from your checking account, opening a high-yield savings account, etc etc etc. The article will go there, I’m sure, and I’ll send it out when it does.
Where I want you to go is to that place where savings doesn’t feel like another thing you don’t have, but a thing that can set you free, if you let it.
Sit in that place for just a moment, think about a number you can comfortably start setting aside every week or every month, and start that savings habit, today.
