Trying to figure out what you “should” do in life often leads to disastrous consequences. Who hasn’t been told “you should do this!” or “you should do that!” only to end up more confused? Lord knows I have.
We have all been there, unsure of what to do, we listen to other people’s opinions, and then BAM you wake up with pencil thin eyebrows, bleach blonde hair, and bangs.
Not that *I’ve* ever done that. Ha…ha…don’t look at me like that!
The fact of the matter is that in life, we unfortunately need to fumble and fall…a lot…to figure out what works for us. To forge our own paths. What works for one person most certainly won’t work for everyone.
And, this is even more true for our personal finances.
When I started saving 50% of my income, friends and colleagues said I was nutty (which is totally fine, I like peanut butter). But once the sticker shock wore off, a few would ask, “I mean, I can’t save 50%, but how much should I save?”
Oh boy, what a loaded question. And I’m here to tell you the super sexy truth. Are you ready for it? Really? Cause I’m going to tell you. Here it comes… The answer is… It depends.
Rules of Thumb
There are many guidelines out there for how much money you “should” save. But which one is the best? The Wealthy Barber preaches saving 10% of your income, other gurus claim you should be saving closer to 15% or 20%, and yet others still suggest a 30% savings rate.
A lot of really smart people have tried to figure out how much the average person should be saving, and of the books I’ve read on the topic, the resounding answer seems to be: it depends.
How frustrating. Us silly hoomans don’t want to think about what might work for us, just tell us what to do, now!
The tricky thing here is that it actually, truly does depend on your situation. Some people may only be saving 6% of their disposable income per year, and for some, this might actually be an adequate amount.
Now, I am not suggesting that 6% is a good goal, far from it. My point here is that we don’t know people’s situations. Someone with a lower savings rate may have inherited a house or a substantial amount of money earlier in their life. What works for one person will not work for another.
I know, it would be so much easier if there was a simple answer that applies to everyone. But the devil is truly in the details, and what savings rate is best for us depends on our unique circumstances.
How To Figure Out How Much to Save
First thing is first, gaining awareness about the variables in your life. If how much we need to save depends on our own unique circumstances, now is a good time to figure out what your unique circumstances are. Do you have a stable government job? Or are you a traveling musician? Do you have children? Or are you rocking a child-free life? Are you fit as a fiddle? Or do you have health limitations that may impact your ability to work? Answers to these and other questions influence your ability to save.
Understanding your own personal circumstances will arm you with crucial information to empower you to set a realistic savings goal.
Factor in your life stage. During certain periods of life, we will no doubt be able to save more than other periods. If you are paying down a mortgage, have two young kids in daycare and barely have enough left over at the end of the month to buy a can of paint to cover the marker “art” on your living room wall, trying to save 20% of your income is likely not doable.
You might be thinking - but Jill, don’t we have to save consistently every month of our adult lives?? My answer: No, you don’t “have” to.
If you zoom out a bit on the above example, yes, this household likely won’t be saving much (if anything) for three to five years, but they are funneling money into their house (which is forced savings) and it’s important to remember no life stage lasts forever. Which means, you can pick up the slack at a different stage or in later years. (For a deep dive into this kind of saving strategy I highly recommend The Rule of 30, by Fred Vettese.)
Think about how you want your retirement to look. Beyond your personal circumstances and life stage, you’ll want to think through what retirement looks like for you. What kind of life do you want to lead? What kinds of experiences do you want to have? Your vision for retirement will impact your target savings rate as well.
Your savings rate will look different if you want enough money to go on a luxurious trip every month compared to staying put and maybe enjoying a fancy coffee and a few yoga classes a week.
All of this influences your targets and savings rate.
Once you’ve done the work to gain some answers, you should have a good idea of a target savings rate that you can test out and adjust. For example, if you’re 23 and just got your first job, 10% may be a great starting rate. If you’re that same 23 year old and you want to retire before 65, maybe a savings rate of 20% or 25% might be a better target. If you’re like me, on the cusp of 40 and are trying to supercharge your savings, a savings rate of 30% or more may need to be applied.
Tools
All of this said, you still may be wondering, how much should you actually save? Percentages are all well and good, but what are the dollars and cents?
For those not mathematically minded (I count myself among this group), there are fantastic tools out there to give you a general sense of different savings rates and what those rates amount to in actual numbers. Calculator.net is one of my favs because you can play around with the amounts, time range, interest, and other variables to get a good sense of how your investments and savings could grow.
There are certainly a whole host of different calculators and tools out there (share your favourite tools and calculators in the comments!). So don’t fret, there is help a mere google search away.
Flexibility Is Key
At the end of the day, when it comes to how much you “should” save, maintaining a flexible mindset is key. Depending on your life stage or what kooky things life might throw at you, you may not be able to hit your savings rate every month, or even every year. The important thing is to create awareness and good habits to support yourself when you do face unprecedented times.
The more consistent we can be the better, but consistency with a healthy dose of flexibility is wildly important as we continue on through life.
And if you’re feeling a little behind, if you feel like you’re not where you “should” be, the most important thing you can do for yourself is to start saving. Now.
And remember, you’ve totally got this!
Over the past many weeks of creating content and templates, I realize that to help sustain this passion project I would be grateful for your support!
For those with a dollar to spare, I’ve set up a Buy Me A Coffee account for folks to contribute to here and there. For those frugally focused, I would be incredibly grateful if you were to share my work with your networks and folks you think would enjoy my journey (via email, social media, or homing pigeon).
A special thank you to those who contributed to my Buy Me A Coffee or shared a post! Your support means the world to me - truly.
Whether you're able to contribute or not, I’m so glad you’ve joined me on this journey!
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