Are you wondering how much money you should be saving each month? If so, you’re not alone! This is a common, yet deeply personal question among the personal finance community.
And to put it bluntly, there’s no one right answer.
The Amount You Save is Relative to Income
The cutting expenses vs. earning more debate has been around forever. And to be quite honest you can only cut your expenses back so much. Unless you want to be completely limited in what you save, you need to earn more money.
For instance, my finances are on autopilot. I spend right around the same amount of money every single month. There’s nothing in my budget that I’m willing to cut back on.
Last year when my income stagnated I could only save about 20 percent of my take home pay (after taxes.) However, now that my income has increased I was able to save 47 percent of my income last month.
Next month I’ll earn even more and the percentage of money I save will go up once again.
I already have my expenses at a level that feels right to me. Therefore I’m in a position to save all of the extra money I make.
If you’ve already got your expenses optimized then what you can save is capped. You need to focus on earning more, not spending less.
Ten Percent is Not Very Much
One thing that has always surprised me is that finance gurus say you should save ten percent of your income. That is not very much, at all.
While going from saving nothing to ten percent is great, realistically saving ten percent of your income isn’t going to fast track you to your financial goals.
What Percentage Should You Save?
Personally I think aiming for a certain percentage of income is kind of dumb.
I’m saving for something important to me. I’m not aiming to save half of my income, instead I’m aiming to save every last dollar I can so that I’m that much closer to my goal.
I would encourage you to not look at your savings so much in terms of percentages but look at it in terms of goal amounts.
For instance, if you know when you plan to retire and how much money you’ll need to retire you can work backwards to figure out what you need to save monthly. It doesn’t have to be a certain percentage of your income you just need to be saving those specified amounts to reach your goals.
The only time percentages are useful is if you’re using them to motivate yourself to do better.
Simply create your financial goals with target amounts and then try to beat or exceed them.
Making Saving Happen
Like a lot of other things in life, you need a supportive community of friends to help you achieve your goals. If your family or wife/husband are not helping you, get some friends online. One good resource is the saving advice forums. The guys there can be persnickety, but its cool part of the web for savers. It is also free and there are no ads. Check it out.
If you are really having trouble and need someone to tell you how to save, get a copy of Dave Ramsey’s The Total Money Makeover. It has sold millions of copies and helped a lot of people, so don’t be afraid to make the investment.