The million dollar question (pun!): How much should I save?
Well, there’s a complex answer and a simple answer. In most cases, you’ll get the complex answer.
Everyone’s number is different because we each have different savings goals. Saving for a car is different than saving for a house. Saving for a house is different than saving for college. Saving for college is different than saving for retirement.
Some factors that aid in calculating your savings number:
- How much do you need for your goal?
- What have you already saved?
- How long before your goal takes place?
- Where will you invest your savings, and at what growth rate?
- How much can you afford to save?
As adults, your savings number will likely be limited to the last question: How much can you afford to save? I challenge you to reverse your thinking: How much can you afford to spend? Recite the following motto, specifically in this order: SHARE, SAVE, SPEND.
Looking at spending last will be a good way to focus on your savings goals and forces you to examine how much you must earn to afford your lifestyle.
Earlier I mentioned that there is a simple answer to the question of savings. If you are young and don’t have any major goals yet or are just starting out, a good rule of thumb is to save one-third (1/3). Any time you receive money, share a third, save a third, and spend the rest!
So ask yourself the question: How much should I save? Don’t get discouraged if your number seems high. Remember that you can adjust some factors to reach your savings goal, like decreasing or delaying your goal. Even if you save a small amount now, you are still building the blocks to your financial future. As you continue, increase your savings little by little. Soon enough, you will be savvy at saving without giving it any thought!
Tune in next week to learn why “sharing” is first on my list. Or subscribe below to automatically receive weekly lessons in your inbox!
Homework: The next time you get allowance or money, make sure you know how much is going into each of the 3 S’s: Share, Save, and Spend. Can you save one-third or more? What would a small increase in savings do for your goal?