While setting aside money for retirement is important, don’t forget to stash money for “this is life” expenses. Having a rainy-day fund means you can replace the dead refrigerator without putting it on a credit card. Ditto for holiday shopping – and that planned vacation. And what if, in a worst-case scenario, you lose your job? How long could you manage to pay your bills if it takes a while to find another job?
The standard recommendation is to have six months of your salary socked away for an unexpected loss of income. If you want to maintain your current standard of living, add up your monthly expenses, multiply by six, then add in periodic expenses that aren’t paid each month, such as semi-annual auto insurance premiums. If you have employer-subsidized health insurance, factor in how much it would cost you to pay for your own insurance. Seem a bit overwhelming? Then think about what you could give up, at least temporarily. Those daily fancy coffee drinks add up, as do meals out. Streaming services are cheaper than cable. Revise your monthly expenses to the bare minimum, then start setting aside money.
There are several easy ways to build your reserves. Once you’ve paid off your credit cards, take the money you’d been paying each month and put it into a savings account. Set up automated monthly transfers to savings. If your employer direct-deposits your paycheck, have a portion diverted to a high-yield savings account. Automate your savings
A good rule of thumb for millennials to balance retirement and other savings is to calculate how much you can save each month, then allocate half to retirement savings and half to other savings goals. As your income grows, you eventually reach retirement savings limits, allowing you to put more toward other savings goals. It’s financial adulting.
Building your non-retirement savings doesn’t have to be a chore. Make a game of it.