How Much Should I Save
How much should I save? Answer: As much as you can so you don’t become a statistic like the ones below!
Considering the numbers reported from a few recent survey’s, I would say most Americans are not saving nearly enough as they should.
If you want to know what the average American is doing, according to the US Bureau of Economic Analysis, the Personal Savings Rate from 1960 through the early eighties was around 8-10%. The rate then dramatically declined, bottoming out at less than 2% in 2006, then rebounding to the current 5-6%.
A few years ago, the Personal Savings Rate was being reported as a negative number, meaning Americans were spending more than they were making and not saving a dime. However, these numbers have since been revised, but regardless of how the government measures this statistic the fact is the rate has been in a downward trend for decades.
In another survey by the Employee Benefit Research Institute, they found these dismal results:
- Just 14 percent of American’s are very confident they will have enough money to live comfortably in retirement
- 56 percent report they have not tried to calculate how much they should save to retire comfortably
- 60 percent report savings and investments (excluding home value and pension plans) to be less than $25,000
So, how much should you save? Unfortunately, there is no “one-size-fits-all” answer in the personal finance world. Each answer needs to take into consideration the age, income, debt, net worth, employment status, dependents, goals, etc. of the individual.
If you have thousands and thousands of credit card debt, paying off credit cards should be the main priority, if you have six kids and a low-wage job, just saving a few percent and staying out of debt would be a major accomplishment.
Regardless of your situation, here are 6 simple saving “rules of thumb” you should know:
- If you are currently not saving anything, start today. The earlier, the better.
- Take full advantage of your company 401k match. If they offer a 50% match on the first 6%, contribute the full 6%. If you make $50,000 per year, this equals $1,500 in free money (.5 x .06 x 50000 = 1500) every year! If a 401k is not available to you, contribute to an IRA.
- Automate. If you have to make a conscious decision to manually move money into a savings account or write a check to a mutual fund account, inevitably you will fail to do so. One good option for those without much cash is to start investing in a mutual fund with an automatic investment plan. Many mutual funds allow you to waive the initial minimum deposit as long as you sign up to contribute a certain amount automatically each month. Typically the minimum monthly amount varies from $25-$100. One good option for those without much cash is to start with an automatic investment plan. Many fund families will let you into their funds for little to nothing to start, provided you sign up to contribute a small amount each month automatically.
- Don’t put all your eggs in one basket. If you are just starting out, you won’t have the funds necessary for proper diversification by just buying individual stocks and bonds, so stick to buying mutual funds and ETF’s to lessen your overall risk.
- Remember the impact of inflation. Historically, inflation has averaged 2-3% per year. What costs $100 today will cost around $120 to $130 in ten years, $150 to $190 in 20 years, and $180 to $240 in 30 years if the 2-3% inflation continues. So if you think you will downsize houses when you retire in 20 years into something that currently sells for around $100,000, due to inflation, be prepared to fork out an amount closer to $150,00 to $190,000 for the same type of $100K house today.
- Adjust. Situations change, and obviously, you will have to adjust for your own personal circumstances. Nothing is set in stone and your situation is unique from everyone else. There will be times when you can’t save much and others when you can bank your entire paycheck, adjust accordingly.
There are a million different answers to the how much should I save dilemma; however, a disciplined, regular and committed approach will always be part of the answer.You can help MoneyPig by sharing his posts with your friends. This is a young blog that runs on word of mouth from readers like you. So take a second out of your day and help spread the word! Thanks. :FatMoneyPig