The answer depends on what your savings look like.
- You might manage to eke out savings after covering all of your bills.
- It’s important to find the right home for that extra cash.
- Consider your savings account (and emergency fund) when you make this decision.
A lot of people these days are struggling with higher living costs, and as such, have little to no money left over each month once their bills are paid. But you might be in a different situation — one that leaves you with a decent amount of extra money at your disposal once your bills are covered.
The question is, what should you do with that money? Should you use it to fund a retirement plan? Or should you keep it in the bank for short-term savings purposes?
It all boils down to the state of your savings account
As a general rule, it’s important to have money in your savings account for emergency expenses or a period of extended unemployment. Before the pandemic, the general advice was to sock away enough cash to cover three to six months’ worth of essential bills. In the wake of that crisis, though, many financial experts have upped their recommendations and now say it’s wise to have enough cash to cover eight to 12 months’ worth of bills.
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As such, what you do with your extra cash each month should really hinge on what your savings look like, and how much of an emergency fund you think you should have. Let’s say you’re the sole breadwinner in your household and you have three kids and two pets. If you were to lose your job, you’d be in a pretty tough situation.
In that case, you may decide that it’s a good idea to have a year’s worth of living expenses in the bank. And so…
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