Gen Z, the age group that is currently in their early twenties, is entering a phase of their lives where they are starting to earn their own money. This is an exciting period, but along with this come other obligations. The financial realities that the younger generation or Gen Z has to face are quite different from those of their predecessors. Increasing inflation, a volatile job market, and the economic aftershocks of global pandemics contribute to their worries.
Yet, setting money aside in a savings account shouldn’t be an option, it’s a must for securing a stable future. So, as a Gen Z, how can you determine the right amount to have in your savings account while striking a balance between living for today and preparing for tomorrow? Here is how.
1. Keep three months’ expenses in reserve
An important goal for your savings account should be to have enough to cover three months of living expenses. Let’s say 30,000 rupees are your monthly expenses. Multiply this number by three and you will find out that your emergency fund goal should be 90,000 rupees. This fund serves as a fallback in case of sudden job loss or medical emergencies or other hard times. You won’t have to scramble to pay rent or buy food as the emergency fund of three months gives you a financial cushion. It allows time to regroup, find new opportunities, or solve the issue at hand without money stress.
2. A basic rule: Save one-fifth of your income
A basic guideline that many often suggest is to save 20% of your monthly income. For example, if you earn around Rs. 50,000 per month, the most appropriate decision would be to deposit 10,000 rupees into your savings account (every month). This practice helps you build a substantial savings amount over time. If followed for a full year, you would save 1,20,000 rupees. However, remember this 20% rule serves as a suggestion, not a rigid requirement. Circumstances differ for everyone, and flexibility remains key. You can adjust the percentage based on other needs or opportunities that come your way.
3. Factor in annual expenditures
These are the expenses that don’t happen monthly but still require planning. These might include festival gifts, yearly insurance premiums, or even an annual family outing. Ignoring these can lead to stress when they suddenly appear on your financial radar. To avoid this scenario, tally up all yearly expenses and divide that sum by 12. This will give you a monthly figure.
For example, if yearly expenses total 24,000 rupees, you would need to save an additional 2,000 rupees each month in your savings account. By doing this, you can manage yearly expenditures without disrupting your budget or dipping into other savings.
4. High-yield Savings Account
From kids savings account to women savings account, there are various bank account options to choose from. To maximise your savings, opting for a high yield savings account can be a wise decision.
Considering how much to keep in it? If you have already saved three months’ living expenses and are regularly putting away 20% of your income, keeping them in a high-yield account can boost your savings without requiring extra effort. Over years, you will find that your money has grown more than it would in a regular account.
Remember, savings aren’t just about the amount you set aside, they also involve how wisely you do it. So, if you belong to Gen Z, now is the time to start thinking about your savings. Your future self will thank you for taking steps today.