If you are just starting to become more aware of your money, one of the big questions you might be asking is, “how much money should I save?” This can be a difficult question to answer when you are just starting out. How much money should I save is one of the most frequent questions I get as a personal finance expert, so I thought it would be fun to help you determine what that number might be for you and how you can easily achieve it.
It’s no wonder that 56% of Americans have less than an average of $10,000 in retirement savings and 33% have no retirement savings at all! This goes to show that most people are barely saving and it’s probably due to a lack of education.
Nearly 75% of Americans over 40 are behind on saving for retirement. Can you imagine what that will mean for their future? Who will be left taking care of them?
This is why I’m passionate about helping people become more aware of their finances! If you would like access to our financial tips and Free 7 Day Master Your Money Course, sign up here.
Reasons Why People Don’t Save
There are many reasons why people are not saving each month. One of the biggest reasons is they don’t realize they should be saving now and saving more. When I talk to Gen Xers and Millennials, they don’t think they need to save at the moment. Some of them feel they can’t afford to save. Others think they are “invincible” and that they are saving enough. Most of them express overwhelm about how much it takes to live right now with all the pressures of having it all now.
Here are some interesting statistics according to a survey done by GoBankingRates:
- 42% of millennials have not begun saving for retirement.
- 52% of Gen Xers have less than $10,000 in retirement savings.
- About 30% of respondents age 55 and over have no retirement savings whatsoever.
Wow! That means 1 in 3 Americans have nothing saved!
All the more reason for us to get back to your main question of, “how much money should I save?” If you find yourself asking that question, I am here to help you figure that out today.
So How Much Money Should I Save Each Month?
The U.S. Bureau of Economic Analysis reports that the personal savings rate has averaged around 5% in the past year, and the savings rate has been down to 2% and 3% in 2017 and 2018. This rate has steadily declined from 1959 until 2018.
This means that most people think saving between 1% and 5% of their income is enough to be on track for retirement.
The cold hard truth is it’s unlikely that amount will be enough to retire.
While 5% is better than nothing, saving at that rate could make it very difficult to live comfortably in retirement.
Retirement Calculator: https://networthify.com/calculator/earlyretirement
As you can see from the above:
- With just a 1% savings rate, it would take you 99 working years until you reach retirement!
- At a 5% savings rate, it would take you 66 working years to reach your retirement goal.
- At a 20% savings rate, it would take you 37 working years to retire.
- At a 50% savings rate, it would take you 17 working years to retire.
- And at a 75% savings rate, it would take you 7 working years to retire.
In essence, saving more of your money means you are likely to retire sooner. So what is the magical number?
Related: If you would like to build your savings faster, sign up for our free Master Your Money course to be emailed to you. Sign up here!
So what is my number? How much money should I save?
Some of it depends on how much you make, but for the average person, I recommend saving at least 25% of your income. That would put you around 32 years of working.
If you want to retire really early, save half of what you make!
I know what you might be saying right now, but trust me, it’s possible. I know many people who did it, and I know many people doing it now. I did it the first 10 years of owning my first business and I’m so grateful I did. I’m going to show you how if you save half of your income at an early age, you might be able to stop working hard early in life with a pretty hefty savings.
Back to your magical number…
There is no perfect percentage. But if you plan for yourself, you can determine what percentage you need based on how many years you want to work. Go to https://networthify.com/calculator/earlyretirement to plug in your own numbers to determine the savings rate that works for you.
Related: You can use an app like Acorns to help build your savings every time you spend money. Over time, your savings will grow and it will surprise you how fast you can build up your savings.
Tips to Know How Much Money Should I Save
- Save automatically and consistently. This is my BIGGEST tip for saving success. Have the money automatically withdrawn from your account and added to a retirement fund such as a Roth IRA. I recommend Vanguard and Fidelity.
- To save automatically, it means you must pay yourself first! This is my second biggest tip to help you hit your savings goals. Paying yourself first means you are deducting your savings money off of your income FIRST, before paying your expenses. If you feel uncomfortable with this, then you may want to look at ways you can make cuts in your budget.
- Save a higher percentage if and when you have a high income. I saved 50% of my income when my first business was flourishing. I had friends who were making even more than I was at the time, and they were wasteful with their money and spent beyond their means. Now, they don’t have a retirement account while I have one building through compound interest. Simply put, find a way to save more.
- Start small to get your feet wet with saving and then increase the amount with time. If it makes you nervous to have 50% of your income automatically deducted from your income, then start with 5%, and after a few months, increase it. It’s amazing how you learn to live on less if the money is not dangling in front of you to use.
- Know your own personal goals for the future so you can map out how much your really need to save.
Related: Ready to start investing with your savings? Try learning from an investing tool like Motley Fool. The more you immerse yourself around investment advice, the faster you will learn and save.
Take Your Goals Into Consideration When Understanding “How much money should I save?”
You might have many reasons to save. Perhaps you would like to have an emergency account. Or maybe you are planning to save for retirement. And of course you want to be able to have a little fun along the way, such as go on vacations or learn new things. There are many things to consider for your saving goals.
Your answer to “how much money should I save?” will be unique to you.
This is why it’s so important to consider your own specific goals. Retirement calculators can be a helpful first step, but you really need to keep your own goals in mind.
When asking yourself “how much money should I save?” you will want to consider your:
- Short-term goals – What are your goals in the next year? Maybe you want to plan a vacation, attend a concert, buy holiday gifts with ease, etc.
- Mid-term goals – What are your goals over the next 5-10 years? Perhaps you want to save for a down payment on a house, or buy yourself a car, or accumulate an emergency fund.
- Long-term goals – When do you want to retire, pay off your mortgage, give to your kids or charity?
Saving now can make those things possible and easy to accomplish!
Related: Looking for a way to manage all of your checking, savings and investment accounts? I highly recommend using a tool like Personal Capital or using personal finance software like Quicken. These platforms can help you see all of your finances more clearly and help you manage your money better.
What if I don’t have that much money to be able to save?
If you are struggling to pay your bills and living paycheck to paycheck, then you might be feeling like saving is not possible right now.
I remember being in college with credit card debt and student loan debt. I was just starting my business and needed money to get my business off the ground, so I was charging multiple credit cards. Saving didn’t seem possible at the time.
But after my credit cards got to a balance of about $15,000, I realized I needed to change my relationship with money.
I was getting scared because my debt was climbing, and all the while, I wanted to be saving and getting things under control.
The first step I took was to place my credit cards in a Ziplock bag of water and stick them in the freezer. I literally froze my cards! Anytime I thought I needed to spend money, I had to take the cards out of the freezer and thaw them out. This required me to stop and think about whether I needed to spend money.
This trick worked. After one year, I had my credit cards completely paid off and I was able to start saving a small amount of money in a Vanguard retirement account.
Here are a few other simple ways that you can start saving money each month!
Paying off your debt can be a form of saving money!
My credit cards were charging me upwards of 20% in interest!!! Paying them off first and getting a handle on my spending afforded me the ability to start saving. At the time, I was only saving $20 a month. But as months went by and I felt more comfortable with paying myself first through saving, I increased the amount to $100 a month, then $250 a month, then $500 a month. As my business grew and I learned more about how to manage my money, I steadily increased my savings rate to 50% of my income.
I was able to pay off my student loan debt, pay off my credit card debt, pay all my living expenses, grow and run a business and save for retirement. It all started with freezing my spending habits and forcing myself to assess every purchase.
By the time I graduated college, my business was taking off and making more than I could ever make working for someone else. I believe my early lessons with managing money are what helped me be successful with my business. And this success allowed me to save for my goals.
Related Article: How I paid $20,000 in credit cards and saved $50,000 in 3 years
Where do I start with How Much Money Should I Save?
No matter where you are at, take a look at your money situation and see where you can start. Whether it is paying down your credit cards or saving just $1 a month. Start somewhere and start now. The earlier you learn these saving techniques, the faster you will be able to accomplish your money goals.
Just remember that 5% of your income will probably not be enough for you to retire, so you will want to continue to improve that percentage with time.
I understand that you may not have as much money as you would like. You might have medical debt, or some kind of financial hurdle. But I do believe we sometimes experience these challenges to bring us into greater awareness of the kind of life we really want. You can find a way out, and it might take time and you may have to cut your spending or find creative ways to make more money. Think of this as a challenge that is worth figuring out. Putting your effort towards it means you reach your financial goals faster! If you would like help with saving faster, check out our free Master Your Money course by email. We share basic steps to get you on the right track and even share tips about making additional income.
What percentage of your income do you save? What are your savings goals? What will you say now when someone asks, “How much money should I save?”
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