Get a Clear Answer to the Question: What Percent of My Income Should I Save?
Are you tired of living paycheck to paycheck? Are you constantly stressed over your finances? If so, you are not alone. Millions of people struggle with financial issues throughout the year. Even more alarming is the fact that many folks lack any or enough savings to handle even a basic financial emergency. If this sound familiar – don’t panic. It is never too late to start saving for you and your family’s future.
Understand that saving is a fundamental step in the wealth building process. Simply put, no saving, no financial security. So make the commitment today and learn how to turn your financial wishes and dreams into a reality.
Once you’ve decided to start saving money, the next question is what percent of your income should you save? This is one of the most common questions asked when it comes to saving. Unfortunately, there is no easy answer. It depends on your specific situation. The reality, however, is that you want to save as must as you possibly can, while still living a comfortable life.
This guide will help you determine what percent of your income you should save, give you tips on how to start saving money, and where to store your savings.
How Much Savings Is Enough?
Well, the truth is that you can never save too much money, but most experts agree that you should save at least 10 percent of your annual income especially if you’ve just begun the savings process. This will be enough to give you some peace of mind knowing that you have available funds if needed. If you find it impossible to save 10 percent right now, then start with a smaller amount, such as 3 or 5 percent. Setting any amount of money aside for savings is better than not saving at all.
As you move forward and learn to track and curb your spending habits, you should focus on increasing the percent of your income that you put aside. You might strive to increase the amount you save each pay period to 20 or even 30 percent. Remember, that the more you save, the faster you will secure financial stability for you and your family.
Not Sure Where to Start? Savings Tips
Do you feel like 10 percent of your income too much, let alone thinking about 20 to 30 percent? Initially, savings can feel a bit overwhelming, but having money set aside for emergencies and retirement can help alleviate stress and it is the first step to obtaining financial freedom. Need some help getting started? Here are some tips to help.
Create a Budget
If you don’t have a household budget – now is the time to create one. Start by tracking your expenditures for a few weeks to find out where you are really spending your money. Then take a close look at all your bills and your spending habits and develop a realistic budget that you can manage.
A realistic budget doesn’t mean that you can spend as much as you want. Certainly, you must spend enough money to take care of your basic needs, such as housing, food, utilities, and transportation. However, focus on cutting unnecessary spending, while leaving enough money to splurge on things like a new outfit and special events occasionally. As long as you leave room for occasional rewards, you’ll learn to still stick to a reasonable budget.
In addition, if you expect to receive money, such as a work bonus or tax refund that you did not factor into your budget, plan to save as much of it as possible. Allocate the unexpected money well before you receive it. Otherwise, you may end up blowing it on things you don’t really need and not saving enough. A rule of thumb is to save at least half of all unexpected bonuses, and more, if possible.
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Set Up Automatic Transfer
Once you create your budget, set up an automatic transfer with your bank to have money you designate for savings to go directly into your savings account. This way you won’t be tempted to spend it on unnecessary purchases and it will be more likely for you to stick with your new budget plan.
Debt Relief Services
If your current debt outweighs your income or you feel financially overwhelmed, debt relief services can help. These services will help to reduce your debt as quickly as possible, based on your specific financial situation. They also can help you create a workable budget for your household. This way you are making monthly payments that you can afford, while still saving money.
Where to Put Your Savings?
Once you have started saving money, you need to decide where to put the money. Here are some ideas.
Separate Savings Account
If you do not already have one, it is vital that you set up a separate savings account. Ideally, this account should not be connected to your regular checking account. This will minimize any temptations to go over your budget and make unnecessary purchases.
Most financial experts agree that you should have at least 6 to 12 months of your salary in a savings fund in case of an emergency. If you are out of work or have a large unexpected expense, you will have the funds available and won’t be forced to go into debt to cover the unexpected expenses. If you must take out of this emergency fund, you should try to replenish it as soon as possible.
Long and Short Term Goals
It is essential to create both short and long-term financial goals. Short-term goals might include saving money to purchase a higher priced item that you want or need, such as a home appliance, vacation or special event. Other long-term goals include saving money for a down payment on a new car or house. This can help motivate you to stick to your savings plan.
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Saving for retirement is a must, no matter how old you are. Many experts claim that you should put at least 10 percent of your income into a retirement fund. However, this figure depends on several variables such as your age, standard of living and if your employer contributes to your retirement fund. If you are in your 20s then 10 percent is probably sufficient, at least for now, but if you are older and you have not yet started saving for retirement, 10 percent will probably not be enough.
In addition, if your employer does not contribute to any type of 401(k) plan, you should consider saving more of your income for your future. However, saving even a little bit is better than nothing at all. So, it’s best to start a retirement fund as soon as possible, even if you are only able to put 2 or 5 percent in. It will still add up over time.
While there is no magic number that can tell you exactly what percent of your income you should save, you should do your best to save as much as possible depending on your specific financial situation. As you start tracking your spending habits and create a workable budget, you are likely to find new ways to save more money back each month. Every little bit of savings helps. Remember to save before spend, not spend before save. So, set up a savings plan that works best for you today.
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Rebecca Williams is a former debt counselor with over 10 years of experience.