How Much Should You Save Per Month?

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    There is no general answer to how much you should save per month, because your individual needs and your financial situation determine this. As a rule of thumb, however, 10% is for saving and another 10% for investing.

    How do you know how much to save each month?

    Saving is hard. That’s when we said it.

    It’s not easy to spend money on a future version of yourself, especially considering we live in a convenience culture. When was the last time you had to wait for the potatoes to grow before you had your plate of french fries?

    But here’s the thing. Saving allows you to build up financial freedom, for example to create a comfortable retirement for yourself or to save for a big event like a special birthday or a wedding. That means putting away money may not look the same to everyone.

    How do you then decide on the amount? Financial experts recommend saving 10% of your income every month. but there is no real reason for it other than that it is easy to explain. That is why it is important to know what savings goals you have – so that you can save an appropriate amount for short, medium and long-term goals.

    Long-term goals include savings in age and education, and the savings typically last more than 10 years. Then your medium-term savings can e.g. B. can be saved for the down payment of your dream home and should last 2 to 10 years. Short-term savings can include saving for new technology, a wedding, and other large items, and usually don’t last more than a year.

    Long-term or retirement provision

    If you want $ 2 million in retirement and don’t start saving for it until you are 35, then $ 100 won’t be enough. Use a retirement calculator to find your minimum monthly contribution and use products like traditional and Roth IRAs and your 401 (k) to your advantage. It is also worth knowing how much you need to save to keep your current lifestyle going when you put tools down and do that proverbial golden handshake.

    Medium or short term savings

    Medium or short term saving is for items or events that you need some time to save for, but it is different from your retirement allowance. The goal with medium and short term savings is that you actually save to spend on something in particular. Some examples of medium-term savings goals are a wedding or a house down payment.

    Emergency savings

    Don’t forget the emergency savings. While some recommend a nest egg of at least 3 to 6 months, our founder, Ramit Sethi, is increasing his cash savings to 12 months. That takes advantage in cases like global pandemics, total market crashes, and just plain crappy economies.

    So 10%? 20%? Start with what you can afford and work your way up. There is no point in saving 20%, but you are barely paying your bills and putting pressure on your creditworthiness. As you pay off debts and free up expenses, you can increase your savings and investment contributions. If you’re only spending 40% of your income on payments, it makes sense to put a little more aside.

    In Ramit’s book, I will teach you to be richhe recommends the 50/30/20 rule. While this may be a little different from what you are used to, it is designed to prepare you for your rich life. So this is how it works, with fixed costs around 50% of your gross salary, savings and investments in the 30% slot, and to make life a little more fun, debt-free spending of 20%.

    You can adjust these numbers as you meet certain goals and increase your investments or expenses as your payments go down. But the idea is to build a bag for yourself that won’t violate your financial goals and commitments.

    We need to talk about debt

    Now your savings percentage could be too depend on your debts. If you have a credit card with a high balance and high interest rate, it may not make sense to spend 20% on savings. You need to compare the interest you pay on your debt and the interest on your savings to determine whether more money should be spent paying off debt first. Let’s explain.

    Credit card interest can start at 12.5% ​​APR and go up to 25% and more, depending on certain factors. Now you will find that it is almost impossible to find a savings account that pays out at least 12.5%. On average, savings accounts at the larger banks pay around 0.01% and at an online bank up to 1%.

    If you have a credit card with $ 10,000 in balance at 12.5% ​​interest, it will take 36 months to pay off at a monthly rate of $ 335. The total interest paid is $ 2,040. Add that $ 100 and increase the rate to $ 435 and you’ll be paying off the card in 27 months. The total interest paid is $ 1,491, which means you will save $ 549.

    Now, if you decide to put that $ 100 in a savings account instead every month for the next 27 months at a rate of (at best) 1% interest, you’ll earn a whopping $ 31.73.

    One way to make this a little easier is to move the credit card balance to a 0% interest card and look for a long withdrawal period like 36 months. You also want to make sure there is no transfer fee. Then pay out your credit within these 36 months. This may not affect the minimum 10% used for savings.

    If this is not possible, you still want to withdraw this balance as soon as possible. You might find 5% more for debt repayments and 5% for savings, or you might find the ratio that will get you out of the red the fastest while building a financial safety net.

    Saving strategies

    Conscious spending

    Budgeting gets a bad rap and for good reason. It conjures up a finance drill sergeant who will whip your ankles every time you order a latte. But with I Will Teach You To Be Rich, we have a different approach. We want you to have those $ 3 lattes and as many as you want.

    But here’s the thing. You have to start asking these $ 3,000 and $ 30,000 questions to make this stick. What do we mean by that? If that $ 3 bar puts you under financial pressure, it means something big is misaligned in your budget. Ask questions about your important articles.

    The important things that go into the cost of living, such as:

    • Their apartment
    • The amount you spend on groceries
    • Your car
    • Insurance
    • Subscriptions you don’t need, use, or want
    • Your debts

    If you’re not sure what the problem is, it’s time to break your spending down into:

    1. Payments (your living expenses, debts, and ongoing expenses)
    2. Saving (emergency savings, special savings such as weddings and real estate down payments)
    3. Investments (this includes pension contributions such as 401 (k), Roth IRA, and traditional IRAs).
    4. Guilt free spending (Whatever rocks your boat, baby!)

    Using some of your income on debt-free expenses eliminates FOMO from your life, but if you’ve lived on a tight budget it likely means you had to sacrifice something to get it. And that’s fine. Rather, lose the service or subscription that you are not even sure about and do the things you love. I’m not saying you don’t pay your student loan because you hate it, I’m saying if you aren’t big on TV then why have streaming services when you much prefer to go out? Or work out? Or do you have your own personal library?

    The envelope system

    This system works on the basis that your salary is cash and each category that you need to spend money on has an envelope. On payday, distribute the money between the envelopes. If there’s money left in one of these envelopes the next payday, you can pay off your debt faster, increase your savings, or buy the pair of Jimmy Choos.

    Now the handling system doesn’t require you to use real cash. You can use a specially designed app for Envelope budgeting to do this. Everything here revolves around automation.

    The reason this system works is because it trains you not to spend too much. It also creates an opportunity for you to have fun without your finance drill sergeant on your neck, to live like the Spartans.

    What if I can’t save that much?

    Ramit has some practical guides which will help you save some money to wiggle freely.

    Some include ways to increase your income, from starting a business or outside employment ask for a raise. Ramit often says, “There is a limit to how much you can save, but there is no limit to how much you can make.”

    Extreme changes can include moving to a cheaper house or swapping your car for a cheaper model. Remember, you are making these changes so that you can live your best life, not so that you wallow in the silence while eating ramen and trying to watch your neighbor’s TV from your balcony.

    Even if you’re not at the 10% mark, save 1%, then increase to 2% and then 5% until you can invest enough money to afford a rich life. It’s about getting started, gaining momentum, and moving on. It also helps when you start thinking of savings as an urgent way to get out of a financial hole rather than a bothersome expense.

    You can do it

    When it comes to savings, you already have the tools and expertise to make it happen. It’s just about automating the monthly payment to the account. Start with as much as you can afford and work your way up. Plan your time-sensitive savings goals to make sure you can hit them without investing in credit.

    Knowing how much you can save means familiarizing yourself with your finances and assessing your personal needs. The goal is to get started.

    If you want to learn more about managing your personal finances, learn how the rich do it with ours Asset Triggers Program.

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