How Much Money Should You Save?

Besides your incomes and investments, your personals saving is the most important thing in building your financial security. The eternal question, how you should save and how much money you should save? The answer would be, nothing until you repay your debts. They can drag you down, and you won’t be able to save anything. Your debts will pile up, and financial future would be unstable.

Saving-money20 percent of your income?

Many financial experts advise that 50% of your budget should go to utilities, rent and food, 30% on additional expenses and 20% on savings. I strongly recommend you should save 20% of your income. But, this amount isn’t always appropriate for anyone. For example, if you are a high earner, this will be easy for you. On the other hand, if your income is low, then it will be hard for you to set aside that amount of money. But, if you want to have some financial security during retirement, 20% is the right number to reach that.

Why 20%?

Based on some analysis, assuming that you are in the 20s or 30s, you will be able to earn an average salary return of 5% per year. In this case, you will need to save at least 20% to have a peaceful retirement and to achieve financial independence. The things are simple, you can work all day and night and still lead a nice life, having vacations, good house, and emergency funds, but still you will need to work. The thing about savings, we all save so one day we won’t have to work. For many, that day will come when they reach the 60s or 70s. But, there are also people who will reach this when they are 40.

Why are you saving and what for?

SavingsIt all depends on what kind of goals you have later in the future. Whether you will go down poverty line or you will have two houses and regular vacations. People often make mistakes and fail in between. People have recently adopted a four percent rule. Which states that you can withdraw 4% of your annual balance and live on it. It means you will have to save 25% of your monthly income. Of course, the downside of this principle is that many things can change in the meantime. Prices can go up; inflation can increase, or taxes can become bigger. If you plan to follow this plan, you need to evaluate everything.


How long will it take you to save enough money?

It all depends on percentage and how much money you are willing to give up in favor to your saving account. The mentioned percentages above, if you save 20%, you will need 41 years to reach peaceful retirement. On the other hand, if you save 25% of your income, you will reach that in 37 years. It may seem very scary and very long, but the lower your expenses are, the faster you will achieve your goal.