I know it, you know it, everyone knows it—you should be saving a portion of your monthly income. If we all know it, why isn’t everyone doing it? It’s because saving money is easier said than done. It takes sacrifice, discipline, and patience. There’s also the question of “How Much Should I Be Saving? You may have heard varying savings ratios and guides but still aren’t sure how much you should be saving. I’ll tell you now, when it comes to socking away cash, to each their own. Let me tell you some saving ideas and then I’ll explain why YOU need to decide how much to save.
There’s the tried and true “save 10% for retirement” standard.
When you don’t know where to start, this is the perfect place to give it a go. But here’s the thing, saving 10% of your monthly income may sound utterly impossible at this point in your life. Or for some, it could be an easy task to accomplish by putting in 5% of your income into a 401k and get an employer match of 5%.
Don’t forget—there are emergencies to save.
The 50/30/20 ratio comes to play here. This ratio accounts for 50% of income for necessities like your food and living, 30% for discretionary items you “want”, and 20% for saving. If you save 10% for retirement, that leaves 10% for emergencies.
There are some that say you should save 20% for retirement.
That would make it a 50/20/30 ratio. Or for two income households, I’ve even heard of living off of one and saving the entire second paycheck. Recently, I read an article that said Angeline Jolie uses a 33.3/33.3/33.3 ratio. Her budgeting is different in that she lives on a third, saves a third, and gives away one-third of her income.
Of course, if you start working as an 18-year with all of the life experience and financial knowledge you have now, sure it’s no problem to start saving 10 or 30% of your income. But for most people, the ability to meet or exceed these savings benchmarks isn’t a lack of willingness to actually save the set amount—it depends on their current financial situation. Many have a low income, debt, and family financial responsibilities. I’m not saying any of this to let you off the hook of saving money, no far from it. What I’m saying is to start saving as much as you can, as soon as you can. It won’t get any easier. The most important thing is to look at your situation and try to save 10% and start increasing the percentage as your expenses decrease and you income increases.
All the best,