Everyone should have a savings account but what is always being debated is how much should you save. Money that you hold in a savings account depreciates due to inflation and low-interest rates but you should still have some sort of an emergency fund that is easily accessible.
Deciding How Much To Save
There is no ideal percentage of money that you should take from each paycheck and put into a savings account. When talking about how much should you save, most personal finance experts recommend taking at least 10% of each paycheck and putting it in a savings account. While you can follow this rule, what is important to note is that you can put as much as you want but it is important to know when to stop piling cash in a savings account.
When To Stop Saving
Due to the way money depreciates, you should have a goal of how much you want to have in a savings account. Knowing when to stop saving and start investing is an important step in the process.
When deciding how much should you save in a savings account, it is important to set a goal. You should think about your monthly expenses and multiply that several times. Ideally, you should think about 6 to 8 months of expenses. That would be the ideal amount of cash you should have saved. Anything beyond that point should go towards investments.
A common mistake that many people do is to think about paychecks. Instead of saving 6 times their monthly expenses, they think of paychecks. Your monthly income is usually higher than your monthly expenses. This can lead to situations in which 6 months of income would imply too much money saved. As inflation devalues your savings, you want to preserve the value of your money by finding a balance between how much should you save and how much should you invest.
