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If you’re the “glass half-full” type, one silver lining to our nation’s recent economic troubles is that the personal savings rate—the percent of our personal income, on average, that we save instead of spend—has skyrocketed. In fact, as Americans, we’re saving more now as a percentage of our income than we have in almost 15 years!
Go back to 1959—the year the U.S. Department of Commerce’s Bureau of Economic Analysis first began tracking this particular statistic—and you’ll find that our collective savings rate at that time was somewhere around 8 percent. Unfortunately, after the mid-1980s, our rate of savings seemingly fell off a cliff. It reached an all-time low of 3.0 percent in 1987, just a few months before the global stock market crash in October of that year. After a brief rebound, the measure declined fairly steadily for years.
Since November 2008, though, we’ve hovered near or even above a rate of 5.0 percent—certainly a step in the right direction. With our historic tendency to save more in times of recession, it does remain to be seen if we will sustain this trend even after the economy turns around.
What Are We Saving For?
With our renewed interest in saving, it’s the right time to talk about what we should be saving for. While each of us has different priorities, which can depend heavily on age, family situation, and overall goals, here are four areas we should all consider saving toward:
1. The Unexpected
Experts agree that saving at least three to six months of expenses is a must, just in case you hit a bump in the road such as a job loss, medical or health care-related expense, or any other unanticipated expenditure. Of course, more than three to six months’ worth is even better.
Advisors generally agree that setting aside 10 to 15 percent of your gross income toward retirement is important, particularly when you consider what happened recently to retirement savings in the stock market and the continued discussions in Washington about the future of Social Security and Medicare. Use our retirement planning calculator (MillburySavings.com/Calculators) to find out how much you need to save.
3. A Home
You’re expected to put down more than ever on the purchase of a home. In fact, saving 20 percent of your new home’s anticipated cost is not unreasonable. If you think you’ll be in the market for a home anytime soon, and don’t already have equity in an existing home, aim for saving at least that much toward the purchase price—even more if you plan on purchasing a fixer-upper or will need extra cash to furnish it.
4. Your Kids’ Education
As the cost of higher education continues to rise, and the future of educational funding remains uncertain, putting money aside for junior’s education is wise. Not sure how much you’ll need to sock away? Use the SallieMae® college cost calculator (SallieMae.com) to help you estimate.