It’s an age-old question from anyone who would like to retire one day.
How much should you save?
The answer to that question depends on a number of factors, such as short-term goals as well as the lifestyle you want to achieve later in life.
However, there are some general rules of thumb to follow for how much of your income you should save, and here they are.
Set Aside a Percentage Of Your Earnings
Experts in the industry agree that you should generally reserve 20 percent of your income in a savings account.
To make it easier, let’s say you earn $500 per week after tax from your employer. That means $100 of that should go right into your savings. Some banks have a feature to automatically redirect a certain portion of preauthorized deposits into a separate account.
That leaves 50 percent of your income ($250) for things like housing, food, and bills, with another 30 percent ($150) used for discretionary spending. This category can range from vacations to fine dining to buying yourself a new camera for a hobby.
It helps to have a record of your income using Paystubs.net to keep track of your earnings and deductions.
Put Money Into a Separate Savings Account
Having money deposited into your account and simply calculating how much to set aside later for your savings is not enough. In order to save money without the temptation for using it for other things, you should open a savings account and regularly move money into it or set it up automatically.
Besides, putting money in a savings account generates more interest on average than leaving it in a checking account.
To take it a step further, there are some types of savings accounts you can’t touch or are difficult to access, so it eliminates the urge to impulse buy rather than sock money away. Try opening the savings account at a different bank altogether from your main one. Don’t carry the debit card around for that account.
Determine Your Goals
If you want to live large now and see the world, then 20 percent may be a bit steep as far as savings go. You have to take a realistic look at your short-term goals and cost them out.
For example, if you have a $5,000 wedding coming up in 14 months, simply divide that cost by the number of months. (In this case, that’s $357 a month. Based on $2,000 a month earnings, that’s only 17 percent of your income.)
If you’re still looking for a healthy retirement you can aim to save at least 10 percent. Remember, some employers match 401k contributions, so even saving 5 percent of your earnings means you’re actually putting away 10 percent.
How Much Should You Save? It Depends On You
How much should you save? It depends on your short-term and long-term goals. While saving 20 percent is the golden number, it’s not everything. Saving as much as you can is better than saving nothing!
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