How Much You Should Be Saving

Here's some advice on how much each of us should be socking away in savings from the book The Net Worth Workout: A Powerful Program for a Lifetime of Financial Fitness (see my rating for details):

Generally speaking, I think that a good goal is to be saving 10 percent of your gross income by the time you're thirty years old. If you're a woman, I'd suggest you shoot for 12 percent, because women tend to earn less, live longer, and pay more for products and services like haircuts and drycleaning.

Incidentally, when I say 10 percent (or 12 percent), I'm not including whatever your company may match for your 401(k) plan. Because the company match is "free money" from an outside source, it's not really coming from you. It's best to use the company's match as part of your total savings cushion.

My thoughts on this:

1. As a GENERAL rule, I'm ok with 10% of gross (not net) income. However, I prefer people go to the trouble to estimate the actual expenses of what they are saving for (retirement, college, etc.) and then save accordingly. This may put them at 6%, 9% 12% or 15%. That's ok to me -- it's a better estimate of what they'll actually need.

2. I think it's ok to count 401k money as long as it's yours (in other words, as long as you're vested for the amount in your plan.) What's it matter what the source is, it's still your money isn't it?

3. I've been at the 15-20% level of savings for several years now -- and 10-15% before that. It takes a lot of money to save for something like retirement (as I found out when I set my retirement number) so even while I'm saving a high percentage, I need to.

For more on saving for retirement (the biggest savings expense most of us will have) see these posts:

• How to Maximize Your Retirement Savings

• Save a Little Bit a Day and Become Rich

• Saving Ten Percent of Your Salary for Retirement is Not Enough

• Facts on Retiring Early

Comments

[oneway]

perfect tip!!

[Lord]

Well, if you aren't planning on any other income source, pension, or social security, and targeting a constant standard of living before and after retirement with a 100% income replacement level, investing for a real return of 6% for 40 years requires a savings rate of 13.9%. A real return of 7% will lower this to 11.1%. Will you invest in enough equities and will equities return enough in the future to achieve that return? Will you work for 40 years without any lengthy periods of unemployment, illness, or other mishap? Many uncertainties in life.

[Rick]

Unfortunately, I think there are too many unknowns to really make a decent estimate on your actual costs during retirement. What are your health costs going to be 45 years from now (in my case)? If you've saved pretax money in your 401K, what are the tax rates going to be in 45 years? Will your car last you, or will or need to buy a new car? If you plan on moving somewhere to retire, what will the property values be like in that location 45 years from now?

That's why, for me at least, estimating costs simply won't work. I just plan on saving "a lot" -- a lot being 10-15% of my income today. I figure I'll just continue to live within my means, even after I retire.

[Chris]

In my opinion a single person should be saving 20-25%, including retirement, debt repayments above minimums (mortgage or student loans, and should not have any credit card or other loan debt at all) and not including any matches.

A married couple should be saving 10% of the larger-earners income, plus 90%-100% of the second earners income, most of which should be going to paying down large loans such as mortgages. Once the mortgage is paid off they can reallocate those funds to retirement OR if they are making a lot of money, dedicate it to easily-revocable spending such as fancy dinners. I say this because in our present economy a two-income family should be prepared to live on one income without threat of financial ruin.

[Lord]

should be saving 20-25%

Ouch! But this is the route to financial independence and it is much easier to have your money working for you than you work for it.

[Minimum Wage]

I earn minimum wage and have student loan debt. How much REALISTICALLY should I be saving?

[Zook]

Min-

Just start saving. Open up a FREE sharebuilder brokerage account, which takes all of 5-minutes. Link it with your checking account or set up bill pay to your checking account. When I first started saving in a big way, I was sending $5 to my sharebuilder account. So if you have $3.67 cents you can spare, send it via bill pay (save the .41 cent stamp) and get your save on. Once you have some good paper in there, I might keep it very simple for you buy using ONE ETF and ONE bond fund. Only buy ETF's when you have, minimum, $250 to buy.

I would love to hear how much you make, how much you spend and what your expenses are.