How Much Money Should I Be Saving?

How Much Money Should I Be Saving?

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“How much should I be saving?” I get asked this question more often than I thought I would, and it always seems to catch me off-guard. The simple answer is, “As much as you can.” Even an additional $10 or $20 a week into a savings account, over a number of years, has astounding impacts to your overall net worth. Due to the power that is compound interest, increasing your savings rate by 1% can help you retire as soon as 2 years earlier had you not.

As a general rule of thumb, for people in their 20’s and 30’s, I’d recommend 25-30% of your take-home income. Now, you may be thinking to yourself, “You’re crazy. That’s not possible.” Well, it is possible, but that’s not to say that it doesn’t come without sacrifices. When it comes down to it, you’re probably able to save a lot more money than you think you can.

Of course it’s difficult to save money. I never said it was easy. Unfortunately, I think this all stems from the fact that it’s “uncool” to save money in our society. People justify it by saying, “Why should I save money if I can’t take it with me when I die?” or “Money was meant to be spent. I want to enjoy life.” Ultimately, what it comes down to is changing your mindset. When you get your paycheck, are you viewing saving as a burden or a blessing?

Saving should never become an afterthought. I hear people say, “I’ll save money if there’s extra left over at the end of the month.” Well, I’ll tell you what — the money never stretches through the entire month. I would venture to say that most people don’t have any left each month, because they spend every cent they make. In fact, they spend more than they make, quite often. When you save your money first, whether that be 5, 10, or even 20% or more, the rest is yours to spend and do what you please.

Really, it comes down to self-control. And I’m not saying that I’m an expert at it by any means. Saving money is hard at first, but it gets easier with time. Trust me. Plus, once you start seeing that savings account grow, you’ll be even more motivated to continue doing so. It’s that same high that you get after working out. It was tough, and you didn’t want to go in the first place, but I’ve never once left the gym telling myself, “Man, that was the worst. I sure regret lifting all those weights.”

Start at $5/day, and slowly work your way up

Even if you make only $20,000 a year, $5 a day is doable. Sure, the majority of your money goes to rent, clothing, insurance, childcare, and all other living expenses. But these are also the same people that I see driving around in $30,000 or $40,000 cars, brand new off the lot. With a small income, it’s definitely going to be hard to get ahead, but it’s possible with

See, the thing is, it’s not about how much money you make. I’ve known people who make $200,000/year, but they don’t save a single cent of it. They spend it all on a huge house, nice clothes, a fancy car. But on the opposing side, I know families living on $40,000/year, and they’re saving $600-$800 of their income each month. It’s truly not about the gross income, it’s how much you net into your savings account.

Now, I try and be careful with statistics, because you can inflate them however you want by multiplying numbers over a length of time (“Wow! If you save $5/day for 800 years, you’ll have $1.5 million in the bank! Can you believe that!?”). But I feel that this truly helps putting things into perspective. $5 day after 365 days is close to $2,000. If you’re on that $20,000/year income, you’re at 10% of your income! That’s really impressive.

According to this report by the U.S. Census Bureau, the average family income in the United States is $56,512. Depending on what part of the country you live in, this may not stretch as far as it does for others, but even on that scale, you should be able to devote $10-$20/day in savings. At $50,000, even if you can only stick to the $5/day, you’re saving 3% of your income. Start there, and work your way up.

The more you save, the sooner you can retire

Who wants to work their entire life? Wouldn’t you rather be laying on a beach somewhere? I read an article by Mr. Money Mustache a few years ago, and I don’t know why it hit me so hard. But the article simply came down to this: the more you save now, you sooner you can retire.

If you were to save 65% of your income each month, and then maintain that lifestyle for the rest of your life, you could retire in 10 years! 10 years from now! Now, that’s not possible for most people. But the point is, the more you save now, the sooner you’re setting yourself to be financially stable.

He says it better than me, so I’ll quote him:

If you are spending 100% (or more) of your income, you will never be prepared to retire, unless someone else is doing the saving for you (wealthy parents, social security, pension fund, etc.). So your work career will be Infinite.

If you are spending 0% of your income (you live for free somehow), and can maintain this after retirement, you can retire right now. So your working career can be Zero.

Makes sense, right? Basically, your savings rate equates directly to how long you’ll have to work. Personally, I’m shooting for the 35% savings rate. Saving at 35% of your take home pay, and you’ll be able to retire in 25 years. Sounds pretty nice, right?


Your actions have big consequences, and can have lasting affects both for the positive and the negative depending on when you start saving and how much you’re saving. Whether you’re reading this at age 20 or at age 50, start saving if you haven’t already. You’ll thank yourself later.

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