Now, let us consider the six-month milestone.
To ensure financial security, it is recommended to have three up to six months of your annual salary saved.
The advice, while straightforward, can be communicated differently depending on who your target audience is. Regardless of how it’s presented though, all financial advisors will agree upon the same basic principles.
This is a surefire number. Translation for the maths wizards: 25-50% of your annual salary should be deposited in a savings account, so if you’re making $50,000/year this means that between $12,500 -$25,000 needs to stay put!
You’ve heard it before and you’ll hear it again: why is this number so critical, and how can you attain that goal? The answer lies in your ability to take the advice given to you and apply them step-by-step until reaching realization.
If you’re wondering how much savings is enough to safeguard yourself against any form of financial distress, the answer is somewhere between three and six months’ salary. That kind of cushion will give you ample time to come up with a plan should an unexpected job loss occur without severance pay. With this savings plan, you’ll be protected if an emergency arises and you must abruptly relocate. It can also cover the down payment on a car should that become necessary. Even more comforting is knowing that it may provide some extra time to negotiate should your six month’s worth of saved funds not suffice for an extreme situation.
So, how do you achieve this goal?
Securing a job after graduation is an accomplishment in and of itself, yet often does not include generous signing bonuses. Unless you juggled full-time employment during college, your bank account may be looking pretty lean; on top of that, student loan debt can make it difficult to stay afloat financially. To assist you in accomplishing this significant goal, here are a few tips to encourage and support your success.
Saving money is the most advantageous venture you will ever undertake; by investing in yourself, you’re building a foundation for your future. Capitalist or not, having financial reserves can solve and avert many issues. Financial security equates to never fretting whether there are adequate funds to cover rent payments, being prepared when invoices come due, and enjoying the liberty of making decisions without stress or anxiety.
By deciding to live frugally now, you will reap the benefits later. Not only will it allow you to put more money away for savings and your future goals, but it can provide some entertaining stories to tell your grandkids about how much tougher life used to be! Instead of rushing into that first apartment or home purchase right after graduating high school or university, why not delay those plans by a year? Living with family members or renting out a room is an excellent way of putting yourself on a fast track toward financial security. Staying rent-free for a year can get you closer to your savings goal. If you’ve been struggling with low savings, the next time your lease is up for renewal downsizing or having a roommate could be an ideal way to start saving and not spending more than necessary.
Take charge of your finances and make choices that are best for you. When it feels like life is going well, the invites to celebrate other people’s decisions tend to pile up in your mailbox. Although special occasions like weddings, baby showers, and birthday parties can be exciting experiences, they come with a hefty price tag. To ensure this doesn’t hinder your plans, prioritize the events you attend carefully and remember that friendships are about emotional connection rather than expensive presents such as Waterford-crystal punch bowls.
What’s your best advice for building financial security? Share it with us in the comments below!