- Monday - Friday 9:30 am to 8 pm
expertise we offer
How Much Should you Save?
Everyone knows the benefit of saving and how savings could help make a difference in a time of dire need. However, just how much money is required to be stashed away to not be too much or too little? Let’s get into a few factors to help us determine what percentage of our income should be directed into savings monthly.
What should you Save for?
Most income savings are either channeled to clear debt or kept aside for a future need. Savings is great but should never be at the expense of living a financially unstable life. Clearing our credit card debt and loan payments should come ahead of general income savings. Ideally, debt and loan repayments attract higher interest rates than most saving schemes would ever offer. Paying off debt if owed seems like the wise option in this case.
A few exceptions can be given to lower-cost-long-term debt like student or mortgage loans. Please note that savings should never be considered as a form of investment of any kind. The annual interest rates on cash savings accounts are so minute that people should never be eager to leave their money for so long. Savings accounts should be used as a tool to stack up cash for investment purposes. Only then do they serve the purpose of income savings.
The 50-30-20 rule provides an explicit breakdown of how our income should be divided into percentages to include savings. It’s a great way to start when thinking of how much you should devote to savings every month. Here’s the breakdown of the 50-30-20 rule:
- 50% of an employee’s or professional’s income should go to their necessities which may include groceries, student loans, utility bills, rent, and mortgage loans.
- 30% of a person’s income should go to “wants” – the limited things we sometimes need to make us happy like treating ourselves for dinner, getting new clothes, or taking a vacation.
- 20% of your income should go into savings. Savings should always be reinvested into platforms like an RRSP, TFSA, or other lucrative investment opportunities out there.
Budgeting your income into chunks using the 50-30-20 rule helps you to manage your income and finances. This way, people know how much is expected of them to spend and save for every month while living a financially stable life with ease. With the 50-30-20 rule, you can always increase your savings as your income increases – since you’re dealing with percentages and not the exact amount.
Everyone knows the benefit of saving and how savings could help make a difference in a time of dire need. However, just how much money is required to be stashed away to not be too much or too little? Let’s get into a few factors to help us determine what percentage of our income should be directed into savings monthly.
Rainy Day Fund
Financial experts advise earners to stash away a minimum of three months’ salary for their rainy-day fund. This type of income saving is mostly accessed for immediate use like paying the contractor to fix things in the house or replacing the bad car tire. The rainy-day fund would help you take care of those annoying emergencies that pop out when they are least expected.
Retirement
Retirement savings require a much more deliberate and long-term savings plan than rainy-day funds and house deposits. Saving for retirement takes a lot of work and commitment especially when we have more pressing needs to attend to. Regardless of how mentally tasking it could be, one must keep their eyes on the price; financial stability after retirement. With this goal in mind, you should be able to commit to your retirement savings monthly. Everyone would love to be financially stable after retirement when they no longer have to work for an income.
Including retirement savings in your monthly budget would help you save a lot over the years for the years after you choose to retire. Most employers help with their employee’s retirement savings plans which contributes to increasing the sum amount of the claims.
House Deposit
Saving for a home would require a bigger target than saving for a rainy-day fund. It’d definitely take much longer to come up with the down payment or full cost of your first home from income savings. The first step to actualize savings for a home deposit is to give an estimate of the kind of home you’d love to purchase.
Making an estimate helps you to determine how much savings would be channeled to that monthly. If you’d need a certain amount for the house in the next five years, divide that amount by 60 to determine what’s expected in savings monthly. It pays to be realistic sometimes by adding a few months to help you breathe a little while you save for the home.
For long-term goals like purchasing a new house, savings after a period should be converted to investments. This way, the previous year’s savings would have multiplied before you save for the next year.
Life Care Insurance in Canada -
Expert Blog
The latest news on the super visa increased length of stay has been announced by the IRCC, and it will take effect
Important Announcement for our clients and readers Canada Life one of the leading insurance company in Canada has offered a great
We’re allowing clients to defer their premiums interest-free for up to 90 days if they: Have contracted COVID-19Can’t work due to a COVID-19