Today we're discussing how to jumpstart a stalled savings account, and the easiest way for me to wrap my head around such an undertaking is by knowing the cold, hard, seemingly-impossible financial facts. Let's figure out exactly how much we need to save each month, and go from there...
The 20% Rule: LearnVe$t is staunchly in favor of the 50/30/20 rule, with 50% of your income going to fixed, essential expenses (rent, electricity, etc), 30% covering discretionary spending (dinners out, clothing, etc), and 20% going straight to savings. If the 20% is hard to come by, it's time to take a ruthless look at your expenses: "if your essential expenses are in excess of 50%, there’s a good chance that the culprit is a rent or mortgage payment that’s too high for your income".
Age 35: Try to have saved at least as much as your current salary by the time you are 35.
Age 45: Have three times your salary saved by the time you're 45.
Age 55: Save at least five times your salary by your 55th birthday.
Age 67: When it's time to retire, your goal should be to have saved at least eight times your ending salary.
Excuse me while I go look for 7 more jobs...
Matchmaker: In The Money Book For The Young, Fabulous, & Broke, Suze Orman insists that you move mountains to contribute to your employer-matched 401(k): "So if your employer does indeed offer a company match, I want you to sign up for your 401(k) and contribute enough each year to get the maximum company match... This is your number-one priority when it comes to savings." This number will vary for each person (and many of us aren't lucky enough to have this option), but will also be a set number for each person. As someone who gets overwhelmed by the vagaries of finance, I find it comforting when things are so clearly defined.
More Than I'm/You're Currently Making: Kiplinger's has provided a simple yet effective monthly savings calculator that lays out just how much you need to save each month in harsh black-and-white. Hint: it's a lot. By my highly-scientific fiddling with the calculator, some of us may need to be saving nearly 40% of our income. If you're able to do that, please share with the class.
Less Than We Think?: I'm going to attempt to go out on an encouraging note, thanks to a discussion on The Motley Fool concerning whether many of us are saving too much. I did not find any of my financial fears laid to rest, but perhaps you will? And as the writer notes, "Overly aggressive savers and investors may risk losing out on too many opportunities to enjoy their lives while they can." Encouraging!