203 | How Much You Should Be Saving

How much should you be saving? What’s the right amount? With so many rules about what we should be doing with our finances, it’s hard to know what to follow.

In this episode, let’s talk about navigating the savings rules and how to determine how much you should be saving.

• • the danger of the rules we often hear about saving
  • the importance of saving money
  • the personal nature of personal finance
  • guidelines to consider in determining how much to save
  • a personal savings example

You’re listening to Wealthyesq. We are a community of lawyers who believe that true wealth is having control of our time. I’m Rho Thomas, and as a busy wife, mom, and former Biglaw associate, I know all too well the tension between the culture of the legal profession and pretty much everything else you want to do in life. That’s why each week, I’m bringing you the information and tools you need to improve your money mindset and manage your money to create true wealth. Because ultimately, it’s not about the money. It’s about the freedom and flexibility the money affords.

Hey friend. Welcome back to the show. I hope you’re doing well and having an amazing day so far. Today we are talking about your savings. And specifically, we’re talking about how much money you should be saving. There are a lot of personal finance rules out there about what we should be doing with our money. And I think we have to be really careful with that. Because sometimes we get into this mindset of believing that there’s a right answer and that someone else has it and we defer to what someone else says, and we believe that we are wrong, because we’re not doing what someone else says that we should be doing. A lot of my clients beat themselves up when they’re not hitting the numbers or the percentages that are put out there in the media about where we should be with our personal finances. So that’s what I’m gonna talk about today. Now, don’t get me wrong. I’m not saying that you just don’t need to worry about saving at all. It is a good idea to have savings, right? Like having money in savings helps to give you a buffer between you and things going sideways in life. So for example, one situation that I’ve seen play out over and over again, is lawyers coming to me with credit card debt. And when we’re talking about it, a lot of times it’s that they were spending to the limit of what they made. They didn’t have savings, right like there was no extra money on hand. So when an emergency came up, or when some unexpected expense came up. They relied on credit cards to cover it. And then they weren’t able to pay off the credit card because they didn’t have extra money. So then their expenses were higher and then another unexpected expense comes up and they put that on a credit card and it started this cycle where now they’re in like $50,000 of credit card debt, and they can’t figure out how to get out of it. So all that to say having savings is important, right? That’s the baseline understand that we’re working with you. But beyond that you get to decide how much that savings is. I firmly believe that personal finance is personal and that every person has authority over their own finances. They are the boss of their finances. They’re able to decide what works for them and what works for one person. may not work for another like what you decide is good for your savings may not work for me and vice versa. But when we get into shoulds with our money, and we take all these rules that we see in the media, we completely ignore our own authority. We defer to someone else’s thoughts about the best way to manage our money. And I think staying stuck in the shoulds of personal finance is what makes personal finance feel bad for people like you’re trying to fit yourself into a box into these rules, but they don’t take into account what you actually want or what’s going on in your life or the things that are important to you. There are no rules, right? All of the so called rules are just someone else’s thoughts about what is the best way to handle your money. They are suggestions and ultimately, you get to decide how much you’re going to save and whatever else you do with your money. Having said all that, I do want to give some guidelines or some things to have in mind as you’re deciding how much to save. So you have the authority you get to make the decisions for your own personal finances. But there are some things to consider some kind of best practices if you will. The first thing you want to think about is what your savings is for. I recommend you have at least an emergency fund. But you’ll also likely have other savings goals like saving for vacation or saving for a house or saving for a car or some other special purchase. So you want to make sure that you know what you’re saving for because that will allow you to set savings goals so you’re not saving money just to save right you’re saving with a specific goal in mind. And you’ll know once you’ve reached that goal and you can move on to the next thing with specific things that you want to buy or you want to pay for. It’s pretty easy to set those goals because you can see how much the thing costs or you know how much of a down payment you want to make. So you can easily set those targets. But with your emergency fund, it’s a little bit different, right? It’s a little bit more nuanced and deciding what the goal is going to be. So let’s talk about some of the things that you wanna consider there. One of the biggest factors to think about is your risk tolerance and the circumstances of your life. For example, a single income household might have more in savings than a dual income household because there’s less of a chance that both income earners would lose their job at the same time, right? Someone who has a steady income like you get a set paycheck every two weeks might decide to have less than savings that someone who has a more variable or more volatile income. People who have kids or others who depend on them might decide to have more in savings than someone who’s only responsible for themselves. All of those examples kind of show you like why the amount that you save is 100% a personal decision like there’s no one size fits all here for how much you should save. It’s going to depend on what’s going on in your life. Beyond that you want to think about what you want to cover in an emergency and for how long so you likely don’t need to cover your full income here. Sometimes in the beginning of working with my clients, they will think that they need to have an amount that’s like three to six months of their income. And they’re looking at this huge number and it feels really out of reach and they feel like they’re never going to get there. I think of your emergency fund as a safety net. So if you’re in a situation where you need that safety net, you’re probably not going to be spending as much as you spent in normal times when things are fine and everything’s going well. So we don’t base your emergency savings on your income. We base it on your expenses. And within that it’s not all of your expenses is the ones that you want to make sure are covered in an emergency. So what do I want this safety net to cover for me? For us, I want to be able to pay our mortgage, get food, pay for electricity, gas for our cars, like all that kind of stuff. So these are baseline expenses that you want to cover in an emergency. Once you have that it’s just a matter of deciding how long you want to be able to cover them for so is it a month? Is it three months? Is it six months a year? And this is where the circumstances of your life and your risk tolerance come into play to for a long time. My husband and I had just one month of expenses in our emergency savings. Like we were really focused on paying off our debt. We were both making money. We had steady dependable income. We lived on a lot less than we made because we were putting a lot of our money toward extra debt payments. So we were cool with just having a month of expenses and our savings because we figured if anything came up we could just put less money toward an extra debt payment and use more of it for whatever the unexpected expense was. It wasn’t until the pandemic hit in 2020 that we built up our emergency savings more so from 2016 to 2020. We only had a month of expenses in our savings when the pandemic hit and there were layoffs and furloughs and then student loan payments were paused we decided to stop making extra payments for a few months and build up our savings instead because that income no longer looked like a sure thing, right? Like there was a chance that I could be laid off or I could be furloughed where we didn’t have an income coming in. So we decided that one month was no longer enough for us. We wanted to build that up a little bit more. So that’s what we did. Most of my clients do three months so they can get some savings in place and then they can start using their money to start paying off their debt. The typical advice you hear in the media is have three to six months of expenses. I’ve even heard of people doing as much as 12 months of expenses. But I think as you get up to 12 month and beyond, there are some trade offs as to whether that’s the most effective use of your money, especially if you have other goals like paying off debt and especially if that debt is higher interest debt, but as we talked about at the beginning, it’s 100% up to you if that’s what you want to do with your savings. So those are my thoughts on how much you should be saving. I hope that this conversation gives you permission to ignore what people are telling you you should do and decide for yourself how you want to make your finances, how much you want to save, all that kind of stuff. And hopefully it’s also given you some things to think about in determining the right number for you. All right, so that is it for this week’s episode. Please subscribe to the show and leave a review doing that will tell the podcast platforms that this is a valuable show and will help get it in front of more lawyers who can use this information. Thank you in advance for your support. As we close out friend, I pray that you take the information you learned here, apply it in your life and open up to the realization that wealth is available to you. As you do that consistently. Week after week. You’ll continue to take steps to regain control of your time, build wealth and live a life of freedom and choice you deserve. Talk to you later.