Financial Advice Q&A

Occasional Visitor
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Question
How much should I save and how should I divide it up?
[ Edited ]

How should I save when I have a percentage of income already allocated? And Should I have multiple savings accounts for each goal? I am currenly saving for the following things: Wedding / rings Car Repairs Home Improvements New Tools Travel Vacation Should I have a separate savings account for each goal? Does USAA have a product that will let me take one account and tell it that 10% or 20% of the money that goes into it each month is for X purpose? I'd like to have a tool like that that maybe shows a pie chart and visual representation of my savings balance with allocated amoutns and balances for goals out of the overall balance. What are the reccomended savings guidelines as percentage of income for major life events? What percentage of ones income is acceptable to spend on things like dates, movies, just getting out and being entertained?

Other Answers: 1
Community Manager
Posts: 1,009

I love your thinking! If we could just get more people to approach their finances like you are there’d be a lot less stress in this country!

 

Let’s start with how much you should save versus how much you should spend.

 

How Much to Save
Ultimately there’s got to be some balance here. Saving like a mad man but not enjoying your life today is no way to live. But fully embracing the “You Only Live Once” ideal isn’t right either. If you’re going to tip the scales one way or another though, I’d lean toward saving more. It’s a lot easier to cut back on saving than it is to cut back on a lifestyle you’ve come to enjoy.

 

So what’s the right amount to save? Typically you should be saving at least 10% of your gross pay for the long term. In other words, save to give yourself a chance at security in your golden years. Saving another 5% or so for an emergency fund (at least until you have 3-6 months worth of your expenses built up) is also a great idea. This way you won’t have to resort to debt if a financial curveball comes your way.

 

With these out of the way, we can get back to the idea of balance.  Start by determining how much you need to save for each of your goals.  For example, if you want to accumulate $2,400 over 2 years for a particular goal, you’ll have to set aside $100 per month.  Since it looks like most of your goals are relatively short term, I’d ignore any interest you might earn and instead just plan to fund it all by saving. Then add up the total saving need each month, compare that to how much you have left after your emergency fund and long-term savings, and see if it will work.  For instance, if your goals require saving $1,000 per month but you’ve only got $1,200 available, that’s probably not going to happen. You’d either have to reduce your goals, bump out their time frame, or find additional income to fund them. Again, the right answer here is the one that allows you to have some enjoyment in your life today and also allows you to set aside money for the future. Going too far in either direction typically won’t be sustainable. It’s all about finding the balance that works for you.

 

How to Divide It Up
Finally, USAA does not currently have a tool like you described. Personally, I don’t mind that though because I prefer to have separate accounts. My wife and I literally have 6 or 7 different savings accounts for our various goals. So, you can probably guess that, in my opinion, the best approach is to keep each pool of money separate.

 

Thanks so much for your question.  I hope this helps and I wish you all the best!

 

Scott

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