How much money should you save, as a percentage of income? The 50/30/20 rule says to save 20 percent of your income. But it’s not always so simple.
Your personal saving rate is the biggest factor in building financial security, more than your investment returns and your income. But how much should you really save? $50 per month? 50 percent of your paycheck? Nothing until you’re out of debt or can start earning more money? Let’s see.
When you think about how much money you should save, think about your goals and what you want to accomplish. Your ideal savings rate depends on your specific, long-term reasons for saving.
So, really, how much should you save every month?
There are three timelines you should consider when thinking about your goals:
- Less than one year: Your short-term savings can get used to vacation or buy gifts for your loved ones.
- Less than one decade: You might use this money to replace damaged things in your house, stay afloat when you’re between jobs and make a down payment on a home.
- Lifetime: Saving for retirement, or saving to get out of debt.
The 10 Percent Rule
This is the standard set by many experts, that you should save at least 10 percent of your income. This is a good starting point. It is an easy way to start because it is a set amount of money each month. It should not be that difficult to save 10 percent of your income, but you may want to increase this amount over time. Eventually, you can work up to 20, 30 or even 50 percent to increase your savings and plan for your future.
Many of the high powered men, Gary Vee, Grant Cardone and the likes propose a more radical way to saving your income. According to the 10X way of thinking by Grant Cardone, you should not only look to save 10 percent of our income but you can save 50 percent of your income. This is to make you reach your goal faster.
The thing is that when you start saving, it is a bit hard. But saving money gets easier over time. Once you start saving more money you get used to it and won’t miss the money. But, the key to saving more money is to start slowly and escalate over time. This is why you should develop a daily saving strategy for yourself. After saving daily for 3 weeks it will become a habit. It’s super easy to hack your brain – just keep repeating something daily and after 3-4 weeks you’ll want to do it.
What are the reasons for saving?
There are many reasons you should save but they usually fall under these categories:
- Saving for emergencies
- Saving for investments
- Saving for retirement
Saving for emergencies
Having an emergency fund can help you cover life’s unexpected expenses without having to skip paying bills, take out a loan or use a credit card — all of which can have a negative impact on your financial health. So building up a financial cushion for yourself should be a priority.
Saving for investments
If you are business savvy, then you must have at some point in time, thought about saving to buy a piece of property, to buy shares in a company or to start your own business.
Saving for retirement
If you want to enjoy a comfortable retirement, it’s important to start saving for it as soon as possible.
Financial experts advise to save 10x your annual salary by the time you retire. This is a good benchmark so you can live comfortably for the rest of your life.
To reach that goal, here’s how much you should have saved by each age:
- By age 30: 0.5x – 1x your annual salary
- By age 35: 1.5 – 2x your annual salary
- By age 40: 2.5x – 3x your annual salary
- By age 45: 3.5 – 4.5x your annual salary
- By age 50: 5x – 6x your annual salary
- By age 55: 6x – 7x your annual salary
- By age 60: 8x – 9x your annual salary
- By age 67: 10x your annual salary
How much should you save every month? Here’s where I stand
It differs for some people because not every one has the same income that they can afford to save 50, 30 or even 20 percent of your income.
First things first, look at your current situation.
Do you think you can afford to start saving due to the fact that your current employers pays you shit and you can barely make your bill payments every month?
If you think it will be too difficult, try saving $5 every day for 3 weeks and after the three weeks it will get easier and yo wouldn’t miss the $5.
Secondly, notice how you spend money
Look at your finances carefully and notice how much you spend on things you don’t need. Resolve to stop spending money on the things you don’t need.
If you think you can’t do with those things, I suggest starting a side hustle that will give you enough money to satisfy your wants.
Finally, know how much you can save comfortably each month
After doing the first two above, you will now be able to see what percentage of your income you can save each month comfortably.
If you find out you can save 50 percent of your income each month, do it. Don’t begin adding unnecessary expenses to reduce the percentage to 20 or 10. The more you can save the faster it will be for you to get to your goals.
Keep going! If you are already saving the amount you want to save every month, week or even day, you are on your way to achieving your financial goals.
The most important thing is to start saving. How much will vary from person to person, as well as from year to year. The best savings philosophy, in keeping with our sports metaphors, comes from Nike: Just do it.
Manage Your Money Better
Below are some personal finance books I recommend to help you save more money. They have helped me a lot and I'm sure they'll help you in your journey to financial freedom.
- The Compound Effect by Darren Hardy
- Total Money Makeover by Dave Ramsey
- I Will Teach You to Be Rich by Ramit Sethi
- Master Your Money (Super Bundle)
- Need an extra $2,500? Get loans up to $5000
- Are you in debt? Get free debt consultation and find a solution to your debt
- Unshakable: Your financial freedom blueprint
- The New Money Masters
- Tools to make money in tough economic times
I have read about 5 out of the 7 books and I can boldly say they have helped me handle my finances better. I believe in them because they have helped me in my financial journey and I think they’ll help you too.