If you are already visiting this page, it is assumed that you believe saving is important. We now have this mutual agreement since saving money is the only way you will be able to reach your financial goals. Now it is just a matter of knowing how much savings should you have or be putting aside?
Age verse Savings – How much money should I save?
It’s almost like people know before they ask, but they ask the question anyway. When is the best age to start saving? The best age is the age that you receive your first piggy bank.
The answer is very similar when considering saving to invest, where the best age is as young as possible. This is best as your savings will compound aggressively when you are younger.
For example, if you are 25 years old and manage to save, let’s say $100 000, (for ease of calculation) you would have about $170 000 in total savings 10 years later. This is also assuming you never put one dime of savings in for that 10 year period. (I know you won’t do this) If you were 35 years old and placed $100 000 in to investments, there is no time for any growth to occur. Even though both the 25 and 35 year old had the same amount of dollar value savings, the 25 year old would be much better off. It is important to note however that $100 000 dollars of savings now or in 10 years from now, would not be worth the same due to inflation. It would be easier for the 35 year old to save $100 000 assuming typical positive inflation.
How much should I be saving per month?
The absolute minimum amount of savings that I would recommend per month would be 10 percent of your net income. If you are not at least hitting this benchmark, I would recommend giving your monthly budget a review. Just to place this thought in to perspective, let’s take a look more closely. If after all taxes you are receiving $3000 per month being placed in to your bank account, the absolute minimum to place in to savings is $300. That’s it, you have the remaining 90% of your net income to cover bills and entertainment. Now if you are trying to save $250 000 before you hit the age of 30, you will have to increase your savings percentage quite significantly. If you start early enough, you can also hit this satisfying goal!
Now if your goal is to save as much as you possibly can, what would be a realistic savings amount? Well, this is a great question. Generally if you are able to hit at least 60% savings per month or more, this will put you in a great spot. My personal savings goal is 60%. If I want to save more money per month, I must look at other ways to increase savings.
How much savings should I have currently?
Savings really depends on many different factors including your age, lifestyle, income(s) and so on. However, there is a quick calculation that we can do to determine approximately how much savings you should have now. In order to compute this value, you just need to know what your net salary (after tax) was for each year that you were working. Then you can add up all your salaries and multiply by the percentage you plan to save. This would be a number from 0.10 to 0.6 typically. This would be the amount of money that you should have saved at this point, not including any growth.
If you save, you must Invest!
When you start savings money, it tends to grow very fast. You do not want your savings to sit in your checking account doing absolutely nothing for you. The first thing you must do is start investing. Check out our post about the best investment strategy for young investors. When you save and invest, your portfolio grows more rapidly after each and every passing year.
Keep in mind that if you are not investing your savings, you are losing money! Every Month! You will be losing money at the rate of inflation in that particular year. This can be any percentage between 0.5 and 2%.