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There’s one financial goal you should achieve before building a retirement nest egg.
Key points
- A recent survey reveals that nearly one-quarter of Americans have the goal of boosting their retirement savings in the new year.
- Before you focus on long-term savings, you should make sure you have enough money for unplanned expenses.
It’s not uncommon to make New Year’s resolutions when one year draws to a close and another begins. And in a recent Bank of America survey, 23% of respondents say that a big goal of theirs for 2022 is to set aside money for retirement.
That’s a smart thing to do. Social Security benefits typically replace about 40% of the average worker’s pre-retirement wages, and most seniors need a lot more money than that to comfortably pay their bills. But while saving for retirement is a worthwhile goal, there’s one move you should make before you focus on building a nest egg for your senior years.
Make sure you’re set for emergencies
Saving for retirement is definitely important, but so is saving for near-term unplanned bills. If you don’t yet have a fully loaded emergency fund, it pays to first build up some cash reserves in a regular savings account and then focus your efforts on socking funds away for retirement.
How much money should you have on hand for emergencies? As a general rule, it’s a good idea to save enough to cover three to six months of essential living costs. By “essential costs,” we’re talking about things like:
- Rent or mortgage payments
- Car payments
- Gas
- Groceries
- Utilities
- Healthcare
The logic behind this is that if you were to lose your job, your unemployment benefits (if you’re even eligible for them) won’t normally replace your paycheck in full. In some cases, those benefits may not even come close. You need that cushion in case you’re laid off or are forced to take an unpaid break from the workforce.
It’s also important to have money in savings in case your car needs an expensive part replaced, your home needs a new roof, or you need a medical procedure that will leave you responsible for hefty costs. In fact, you may want to aim to save, say, three months’ worth of …….
