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How much of my income should I save? Anyone who cares about their finances will ask this question periodically. Furthermore, it makes sense to ask this question! Regardless of how much money you make, there should always be some portion set aside for savings. Many people follow the 10% rule, which states you should save at least 10% of your income (although I typically recommend 15-20%). But the exact percentage isn’t as important as simply having a plan.

If you have a savings plan that matches your goals and lifestyle, makes sense with your income, and is comfortable to commit to maintaining long term – then you’re definitely on the right track. With that in mind, let’s explore some finer details of income savings strategies.

How much income should I save? Well, it depends!

How much income should I saveSaving goals will differ depending on your age, job stability, your lifestyle, your dependents, and how you want to spend retirement. Without some background, it’s hard for the most seasoned financial guru to be able to answer the question of what number is enough for you.

That said, saving should be a habit for everyone. And the longer you include it in your routine, the less restrictive it will feel.

Saving in your 20’s

Let’s start with a story about two friends hired to start at the same time for their first “office” position, Jane and a much younger me.

We bonded because we were the newbies and had both just graduated. I remember us talking as we filled out our HR paperwork, and she said, “I don’t make enough to put towards 401K yet. I need every bit just to cover my apartment and car payments. I’ll save for retirement when I make more. Come on, we’re in our early 20’s!”

I often think about this conversation. It’s one of the few times I didn’t speak up…what did I know about retirement in my 20’s? Although I didn’t agree with her strategy, I could see her point. You start out not making much, and you have all these new expenses, living on your own. And retirement is decades away! 

But fast forward to your forties, you have more expenses—more permanent ones—maybe a family. If you haven’t already worked in that habit of saving, it doesn’t get easier to carve out the money. For that matter, in addition to our main question “How much income should I save?” it’s also important to consider when you start saving.

Your lifestyle has grown in step with the percentage of your salary you have allowed yourself to spend. In fact, you may be thinking about cutting back your work hours to spend more time with kids or aging parents. But this often means pulling back on expenses to fit a smaller paycheck. Understandably it can be even tougher to save then, if you aren’t already in the habit.

Starting Where You Are

So where are you supposed to be in your saving journey, and how do you start from here? Like so many things in finance, it depends and it’s personal. But there are guidelines that can help you create your own goals.

Of course, if you started saving when you first joined the workforce, you have time on your side and if you invested in retirement funds, compound interest will have worked in your favor.

It’s never too early or late to start saving, so please don’t think you’ve blown it if you are later in life and feeling unprepared. Get serious about it now because you can still impact future-you in big ways. 

Savings You Need Now

Everyone needs some emergency savings to replace their income in the case of job loss or a large, unexpected expense. Examples include a deductible for a car accident, an emergency vet visit, or an unexpected health event. Americans get a bad rap for saving for a rainy day. In 2019, one study found that most adults reported feeling financially healthy, yet almost a third of those same people said they would struggle to come up with $400 for an emergency.  

For new savers, a good baseline for your emergency fund is at least three months of expenses (not wages) saved. For more “experienced” savers, anywhere from 6-12 months is advisable. Beyond 6-12 months and you are likely better off putting the additional cash into investments that will generate a higher yield.

Meeting your savings goals amidst the pandemic

The pandemic has changed a lot of people’s progress on saving. Those who have held onto jobs and seen their discretionary spending drop now have more savings. Those facing job loss may be dipping into whatever savings they had as they face a tough job market. Parents with children at home are re-evaluating their work situation, and weighing the impact that a change would have on their income. 

If you are facing a tough time right now, I’m not here to lecture you on saving. It’s scary to have to dip into money you were hoping to not need when you don’t know where your next paycheck is coming from. 

My own story struggling with no income and debt

In 2008, I was out of work, deep in debt, and felt like I was never going to reach the other side. I relied heavily on friends in ways I didn’t want to have to. I get it. 

This pandemic is taking a toll, but it is temporary. You will get through this, and there will be a job market on the other side. It’s easy to feel hopeless when you don’t see an out. Please know you are not alone, and the opportunity to start saving will be there when you are able to get back on your feet.

But financial knowledge is something you can grow no matter your current situation. Once you have it, you will use it to build your resiliency in good times.

Once your safety net is funded, high interest debt needs to be addressed. Eliminating toxic debt will free up money for savings, improve your credit score, and put you on track for living within your means. The only thing scarier than entering retirement without much money is to enter retirement owing people money. 

Only after these two are addressed are you able to concentrate on the all-important retirement savings.

High vs. Low Salary: How much income should you actually save?

While more money always gives you more options, you need to consider how you plan to spend your retirement. This will give you an idea of how much you will need. The amount of time you plan to work will also help you determine what savings will be adequate. 

If you want to retire at 60 and live on a yacht, your savings plan is going to look different from someone planning to stay in a smaller home and live simply. 

Yes, income plays a role, but I don’t want you to get hung up on this. The way you spend your money is a stronger indicator of wealth. Many people work for a modest wage, and through living within their means and saving over time, amass a comfortable retirement. 

Likewise, many people with large salaries live in expensive homes and pay for all the trappings of wealth that dwindle their net worth.

How Much Income Should I Save Each Paycheck?

In my article on budgeting, I spoke about the 50/30/20 rule, where 20% is for saving and giving.

If you are still early in your career, a minimum 10% should go towards your retirement savings, both because of how well it will prepare you for the future and establish the habit. 15% is better.

Fidelity suggests that you should have 2 times your salary saved by 35, and 3 times by age 40, with the goal of having 10 times your salary in savings by retirement. 

If you are mid-career and feel that your savings are not as well funded as they should be, you may need to shoot for most of that 20%. After age 50, you are allowed to contribute more to your IRA as “catch-up” deposits. A 401K will allow you to set aside much more of your income in retirement.   

Have a retirement savings but don’t see a way to carve out 15-20% of your income? This may come as tough news, but in that case you’ll need to reevaluate your lifestyle. Not just to save money in the short term, but to ensure you are generally living within your means. 

Living on debt is not maintainable, so you will have to cut back eventually. Addressing your finances head on, you can formulate a plan now for your best future. The Money Detox Circle is a great place to connect with others on this path who will offer you judgement-free advice and support to reach your goals.

Tammy Lally

I BELIEVE MONEY IS NOT YOUR WORTH. Tammy Lally is an author, speaker, and Certified Money Coach (CMC). She helps others master their finances by first conquering their emotions around money, then by creating a comprehensive financial plan. She brings decades of experience and endless love to her bulletproof process for money mastery. She is the author of the book Money Detox, and her TED talk on Money Shame has over 2 million views.

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