4 minute read
Your savings target will depend on your goals and your timeframe.
At First Foundation Bank, we care about helping you meet your financial goals no matter where you are in your financial journey. Whether you’re planning to buy a home or aiming to put your child through college, having a savings plan is key to making your financial goals a reality.
When it comes to savings plans, one size doesn’t fit all
There’s no one savings plan that will work for everyone. How much you need to save depends on multiple factors, including the size of your savings goal, your existing budget, and the timeline you’ve set to reach that goal. Consider the following common savings goals and some strategies for achieving them.
Saving for a down payment is doable
Though buying a home is often a long-term investment, saving for a down payment is usually a short-term goal with a medium savings target. Generally, you should aim to save enough to make a down payment of 20% of the home’s price. For a $700,000 home, you’d ideally want to save $140,000 for your down payment.
If you put less than 20% down, then you may have to pay private mortgage insurance (PMI), which will increase your monthly payment about $50 for every $100,000 you spend on a home. Keep in mind that you will need more than just a down payment—there are other factors such as closing costs, inspections, home repairs, and ongoing maintenance. But first, check to see if you qualify for loan programs that offers lower down payment and other financial assistance through the Federal Housing Administration, USDA, or Veteran’s Association.
Always have an emergency fund
Building an emergency fund is an important short-term goal with a modest savings target. An emergency fund provides you with a personal safety net so you can avoid having unexpected expenses upend your financial plan and increase your debt. Many personal finance experts recommend saving enough to cover three to six months’ worth of expenses such as rent, transportation, food, and utilities.
Be careful not to overdo it, however. While it’s nice to have extra cash on hand, the money in your emergency fund probably isn’t going to earn much interest since it needs to be in an account that is readily accessible and won’t lose its value. You only want enough in there to cover emergencies. If you’re still not sure you’ve set an appropriate savings target, consider the costs of typical emergencies such as car repairs, home repairs, and vet bills, and aim to be able to cover some of those.
Have a plan for college savings
Saving for your child’s education is generally a medium-term goal with a potentially big savings target. That said, college tuition costs vary widely, and what you end up paying will depend on both where your child goes to school and how much they receive in financial aid. Thanks to scholarships and grants, many people don’t actually end up paying the full sticker price for college tuition.
Your savings target will depend on whether you are looking at private or public college, and if you want to cover all of your child’s costs or simply a portion such as books and tuition. Just remember to adjust that target for what the price tag will be when your child is ready for college—from 2000 to 2018 (which is the time it takes a newborn to be ready to enroll in college), tuition costs more than doubled according to the National Center for Education Statistics.
To save for retirement, start early
For most people, retirement is the largest savings goal they will have in their lifetime. To successfully meet this long-term goal, start saving as early as possible. Giving yourself a few decades or more to save what you need can help reduce the amount you have to set aside each month. This approach will allow your savings to compound more over time.
For a comfortable retirement, aim to put away at least 15% of your income each year. You may need to save more than that if you expect to spend more in retirement or if you got a late start on your saving strategy.
If saving 15% seems out of reach, consider ways you could alter your budget to save more or shift your vision for retirement to reduce your savings goal. Alternatively, think about delaying retirement to give yourself more time to save.
Important note: There are many aspects that go into a savings plan that is geared toward the goal of saving for retirement. If your plan includes investments such as stocks, bonds, or mutual funds; or company-sponsored options like a 401(k); or inheritances, you should consider creating a wealth plan. We recommend working with a certified wealth planner to ensure all aspects of your plan are taken into consideration.
To save for other goals, make a plan
Whether you want to save for a new car, a dream vacation, or a that perfect piece of furniture for your home, you’ll want to plan how to reach that goal. Once again, the key factors are how much you need to save and how much time you have until you need the money. For example, a dream vacation one year from now that will cost $3,600 means setting aside $300 per month to meet your financial goal on time.
Check out our Savings Goal Calculator to see what it will take to reach your goals.
We’re here to help you save
We offer a variety of ways to save. Whether you have short-term or long-term savings goals, we can help you create a structured plan for steady savings to help you get where you want to go.
