The financial status for most working Americans in 2020 can be summed up with one word, “confidence.” But whoa Nelly, not so fast. Yes, employment is at an all time high and earnings are up. However, a study by Northwestern Mutual found that nearly a third of Americans over 18 are within three paychecks of needing to either borrow money or skip paying a few bills.
The study also reports that 22% of us have less than $5,000 saved for retirement and will need to work past retirement age in order to maintain their lifestyle. So are Americans financially overconfident? It would appear so.
So how can we buckle down and build a healthy emergency fund and save for retirement?
- Create a budget. I know, it sounds dreary and boring, but reportedly we spend 100x more time watching TV or scrolling our mobile devices than we do working on personal finances. Consider using that device to effortlessly manage your finances with a free app like Mint to see all your bills and bank accounts at a glance, create a budget, and even have access to your credit score.
- Pay yourself before you pay your creditors. Set up automatic deposits that move money into savings each month. These deposits will help you avoid spending money frivolously and quickly build your savings and emergency fund.
The size of your emergency fund and retirement savings depends on your lifestyle, monthly costs, income, and dependents. The rule of thumb is to put away from 3 to 6 months’ worth of expenses for emergencies like car repairs, medical bills, job loss, or temporary disability.
Retirement funds vary by age, but having 2x your annual salary by age 40, 4x by age 50, and 6x by age 60 is recommended for your 401(k). If you retire at 67, it recommended to have at least $600,000 saved.
Many people simply plan to continue working after retirement age and to bank on being in good health and not suffering any layoffs or business failures. The better alternative is to start or increase savings as early as possible. If you never see the money in your wallet or checking account, you won’t miss it.
DL MoneyMatters provides accounting and daily money management services and does not give investment advice. If you need a trusted financial or investment advisor, we may be able to provide a reference.