This is an area lot of people find extremely complicated to decide on what is the exact percentage you should save each month. This always depends on your personal earnings and it is always best to save the maximum as it will be huge benefit for the future. The 50/30/20 rule describes that 20% of your income should be saved for your future or emergency needs. But this is not always simple to execute.
It is understood that more than the gains you get from income and investments, the personal savings is the biggest factor to gain financial security. But saving can be differ depending on your current economic state. Sometimes you can save $ 100 or more than 50% of your monthly earnings. But if you on debt and repayments are larger, this will be a challenging option to achieve. In those cases, it would be wise to plan a more realistic approach to come out of debt faster. (Please ready article, Simple 10 ways to come out of Debt Faster)
How much should you save each month?
Many sources and experts advise a 20% of monthly income to be saved.
As per the popular 50/30/20 rule, from your monthly income you should allocate 50% of your earnings to essentials such as paying your rent, food expenses, 30% for optional spending and at least 20% for your savings. This proposition was made by Massachusetts Senator and Harvard Bankruptcy expert Elizabeth Warren and her daughter Amelia Warren Tyagi in their book, “All Your Worth: Your Ultimate Lifetime Money Plan.”
| Yearly Salary for Unmarried individual ($) | Approximate take-home pay (according to tax brackets published for 2021) ($) | Annual Savings Goal ($) | Monthly Savings Goal ($) |
| 9,500 | 8,550 | 1,710 | 142.50 |
| 40,000 | 34,000 | 6,800 | 567 |
| 50,000 | 39,000 | 7,800 | 650 |
| 90,000 | 68,400 | 13,680 | 1,140 |
As per the experts, we agree that the recommended savings percentage is 20% of your monthly income. But this is very subjective with each individual and could be vary. But if you don’t have any extra money to save, you don’t have to worry that much. The records showcase that 76% of Americans are living paycheck to paycheck and around 34% of Americans have nothing in savings. Even though the facts are like this, we need to create a habit of saving the way you can and improve it with time no matter how small is the savings portion is.
Overtime, you can build the savings portfolio and enjoy the life in a better way. You can plan vacations which you have not experienced earlier, can think of providing your children better secondary education and mostly you can be comfortable with your retirement. Below mentioned a simple calculation to showcase your savings plans.
If you are just looking at the above figures and think that, “No Way” I can achieve this goals, you need to calm down and think rationally. Does not matter if you are earning $ 4,000 per month and you are struggling to save 20% out of this, at least start saving $ 200 every month which is 5% of your total savings. Gradually if you reduce unnecessary expenses and if you come out of debt, you can slowly and steadily reach the target of saving 20% or probably more. The more you save, the more you gain for future.
What are you saving for?
Saving is important to achieve true financial independence to enjoy your chosen life style at latter stages of your life and to sustain it.
Whether you are a family person or single, savings is a vital component in your lives.
What shall I do if I can’t save that much?
Don’t get upset. Be focused. As mentioned earlier in the article, there are quite a lot of American’s who can’t save anything.
What important is, at least to start small. You can start with any percentage of your monthly income as a savings percentage. Then gradually you can increase. Start with 1% and increase it to 4%. Then you will also set your personal goals and objectives to cut your unnecessary expenses and reduce your monthly debt payments by planning and consolidating it.
When you move like this, you will see you have hit your 20% savings goals and also you have become a debt free person. This will be a huge state of self-achievement in financial perspective. This will allow you to be bit relaxed on your expenses and also it will open up you to think of more savings beyond 20% thresh hold.
Once I hit 20%, what’s next?
There is no reason to stop once you hit 20% savings goal. You can keep going. This is extremely important to achieve the life you wanted in a safe manner without disturbing your life style. You always need to test your limits. Otherwise going for much daunting savings goals will make you mentally burden which is a worse thing to happen to you. Remember, always you should have metal peace. Otherwise you will not be able to achieve anything much.
Once you hit 20%, try scaling it up. Retirement exerts mentioned that saving 15% is not enough to have a stable retirement plan. If you have plans to own a luxurious house in a most demanded surrounding, to own the luxurious vehicle, you need to put your match down and see more than 50% of your income needs to be saved to achieve these objectives. This could be daunting but still you could achieve it. Or you can plan for something middle which will be more sensible.
Remember don’t put all your savings in single bank account. At least have two which one can be used for monthly transactions and other a purely savings purposes. You can negotiate a higher interest rate with the bank for this savings account as you can show the solid money it will total up every month.
Last by not least, start saving with how little you have. Don’t live in the past of thinking the bad financial decision you took which is stopping you of saving your wealth. Think rationally and plan yourself and start saving. Time goes fast and you will be in a position where you never thought of probably more a less time than you dream of.
