How Much Should You Be Saving Money Monthly?
March 20, 2020 | Louis Tully
You’ve been told countless times how important it is to save. And it is. Your savings will be your biggest source that determines how stable your finances are. If you are actively maintaining your savings account, then you can count on being financially stable. That safety net, nest egg, whatever you want to call it, is important because that is what will get you through any potential emergencies or what will take you all the way to a comfortable retirement. But how much money are you supposed to save? What is the golden amount that will set you up financially? Half your paycheck? A couple of dollars here and there you set aside? How much should you be saving money monthly?
How Much Should You Save Monthly?
Well, the thing about saving monthly is there is no “golden amount” or method that fits everyone. Everybody has different financial situations so their savings will have to be tailored to fit their needs. However, many experts will say a good percent of your income to save is 20 percent monthly. One popular rule of saving is the 50/30/20 rule. This rule states you have 50 percent of your budget goes to your absolute necessary expenses like bills, groceries, mortgage, and so on. Then you would take 30 percent for personal spending like going out with friends, eating at restaurants, and such. Finally, the last 20 percent is what you would put away for your savings.
Why Is 20 Percent Recommended?
So, why is 20 percent the number that experts recommend? The short answer, for independence from your finances at a good age. Let’s say you start saving 20 percent by the age of 25, by the time you are in your 60’s, you could be free to actually have a comfortable retirement and not have to work yourself to the bone. If you can earn an investment return of five percent on average, and you save 20 percent of your salary, you can be able to retire around your 60’s and have the type of retirement you want – and not one where you are living tight because of your finances.
How Do I Become Financially Independent?
Again, your financial independence will look different from everyone else’s. Since all of our financial situations are different, what it takes to have financial independence will also need to be tailored to us. Even so, experts will say that the four percent rule is good to follow. This rule is basically saying that, at retirement age, you should be able to withdraw four percent of your investments in the first year to live. Then in the years to follow, you can increase that amount depending on the rate of inflation. This four percent rule leads to the “25X” rule. This rule says that in order to be able to withdraw four percent – or more – every year during retirement, you’ll have to save 25 times your annual expenses. So, if your annual expenses total to $80,000, you will have to save $2,000,000 before you get to retirement.
When it comes to finances and how much you should save, the number ultimately depends on how much you already have and where you stand with your debt. Take these rules, not as set-in-stone rules, but as guidelines. And if you need help paying down your debt so you can begin saving, an online title loan from Wisconsin could be right for you.