How Much Should You Be Saving Each Year – Have you ever wondered how much money you should be saving from your income each year? I’ve heard people putting a certain amount of each paycheck going right into your savings account but I’ve always wondered if there was a concrete, “magic” number/percentage that everyone should aspire to achieve.
Saving for retirement, of course, is crucial. But saving an extra percentage to “get ahead” is something a lot of people forget is also important. Sometimes sacrificing in the present can make you feel much more comfortably financially in the future.
How Much Saving Each Year
Of course, everybody’s percentage of what they want to be saving from their income varies on their lifestyle and salary. Let’s first take a look at how much money you should be saving for retirement.
On average, you need to plan on spending 60-100% of your pre-retirement income each year of your retirement.
For example: A retiree made $50,000 a year before retiring at the age of 65. Anticipating that they will live another 15 years, they decide to put aside enough so there’s about 80% of their pre-retirement income to spend annually.
80% of $50,000 = $40,000 x 15 years = $600,000 needed for retirement!
Once you calculate how much you’re going to need for retirement, you must divide that number by how many years away your retirement is. Someone who is 30 years old and needs to save $600,000 for retirement should be saving $17,143 a year for 35 years.
It’s pretty intimidating, but again everybody’s different in what they need and can afford in this moment. As I general rule of thumb I’ve heard that putting aside 25% of your paycheck for retirement is the way to go.
Once you figure out how much you are setting aside for retirement, it’s time to consider
Beyond saving for retirement, how much should be saving? First I think it’s good to decide what you’d like your savings account for– travel, vacation home, car, emergencies, kids, etc. There are plenty of great stuff to be saving for and most of them require a good amount of money, so really I feel like it comes down to saving as much as possible, but let’s look at the income of the 30-year old with a $50k annual salary.
Already he’s putting away 25-30% of his paycheck towards retirement, but what if he wants to start putting a couple grand a year to build his savings account? With rent, bills, and other expenses to consider, I think the most realistic percentage a person can look at putting away is 5-10% of their paycheck into savings. If the case of the 30-year old he’d be putting about $2500-$5000 in savings per year– not too shabby.
Of course, life is expensive and many of us live paycheck to paycheck. I think I’d have to conclude that expecting to put away 35%-40% of your paycheck into savings/retirement is ambitious but will make you very comfortable in the long run. Realistically, however, I think a good rule of thumb should be cut out frivolous spending and save as much as you realistically can from each paycheck but definitely save something.
How Much Should You Be Saving Each Year -