Monday, November 13, 2017
How Much Money Should I Be Saving?
In order to build wealth, you must save money, there are no ways around it. This leads me to the most common question I get asked as an advisor. Most people have no clue as to how much they should be putting away every month. In my opinion, why this question is so difficult to answer is because most people haven’t been asked the right questions. Clearly defining your goals and objectives will help you determine the amount that is right for you. Also, finding out your budget will help determine what amount fits. In this post, I will go over the 4 factors that go into determining how much you should be saving every month. Everyone is different so let’s find out what works best for you.
1) How much money do you make?
This is always a tough one. For many people, how much money they make determines how much they can save. I have clients all over the income range, from the poverty line to high income. They all have the same dreams of safety, security, and stability. Not having the means to save money makes life tough. What you must do is lower your expenses to make it possible. Even starting off with a very small amount like $50 a month will get the ball rolling. You can then focus on making more money.
For those in higher income levels, there is no excuse to not be saving money. If you are finding the same problem, then it is a question of distribution of your money as opposed to the amount of it. This is where using a dedicated budget will help immensely. You can then direct the money into savings using the “Pay Yourself First” method, and spend the rest. I think everyone should try to make more money, especially those in lower-income brackets. It might not be easy, but it will allow you to accomplish more of your goals.
Want to be richer in 2018? Get started now! – Budget Boss
2) How much does life cost you?
Along with how much you make, how much you spend every month goes a long way to determining how much you should be saving every month. For instance, someone who only makes $2,000 monthly but has expenses in the $1800 range will have trouble saving anything at the end of the month. I have found that the greatest threat to saving money is when expenses rise to meet income. What those in lower income brackets must do is attempt to lower expenses any way they can and make more money. Certain things like housing, transportation, food, and utilities might be immovable. You may be able to chip a bit off them every month by finding a more affordable place to live, using public transportation, shopping with coupons, and being energy efficient.
Those who make more money must do the same thing. There is no reason a family of 4 with a lower income can live off $2500 monthly while the same sized family in a higher income must live off 4 times that amount. This is how large amounts of debt occur, so focus on spending less to save more. I call it the “Break-Even” number. This is the number we all need to just get by every month. It should be all our focuses to make this number as small as possible.
3 simple steps to building wealth – Investopedia
3) What are your goals?
People say money isn’t important. I agree, not really, but sort of. Money is not important, goals are. The Sad thing is most goals require money. If retiring is a goal, you need money. If buying a home is a goal, you need money. If going on vacation every year is a goal, you need money. So, is money important? Yes, it most certainly is! You must clearly define your goals in order to establish how much money you need to be saving every month. I remember when I first started saving money, it was to get out of debt. That was my major goal. Once I accomplished that, the main goal was to not be broke. That required me saving a lot of money every month. I wanted a certain amount of emergency savings and I wanted it by a certain time. When you have points 1 and 2 nailed, you can focus on clearly defining goals as it will help you determine what you will be saving every month. Setting goals is the measuring stick to allow you to save money. Without the goals, you will be aimless and fall off your savings plan.
9 tips to effective goal setting – Budget Boss
4) How ambitious are you?
I mentioned how my first 2 savings goals were to get out of debt and to build a healthy emergency fund. How I was able to accomplish those large tasks in a very short amount of time, was by being super determined and super ambitious. How I created my savings budget was by finding out my income and essentials and saving literally every other penny. Is that ambitious? Yes, very. Do I recommend doing that? No, I do not. It wasn’t fun at all. The secret to goal setting is your ambition and drive. High ambition allows you to accomplish goals sooner. You may also have to trade time spent accomplishing that goal for time spent doing nothing but accomplishing that goal. Is that what you want? Only you can answer that question. I so desperately wanted to be debt-free and have some savings that it allowed me to push through many years of hard work. My recommendation would be to find a range of what you are willing to do and what you can comfortably do and go one month on and one month off. Doing this will allow you to keep your sanity while saving money. Unless you’re crazy like me….
Many experts say you should be saving 10-15% of your take-home pay. I disagree. I think everyone should be saving 20-30% of their take-home pay. Why so much extra money you might ask? Here is my breakdown:
10% for long-term growth
10-15% for short-term savings goals
5% for a constantly growing emergency fund growth
TFSA Calculator – Get Smarter About Money
How you can accomplish that ambitious goal is by focusing on all four of these steps. Making more money, spending less money, having clearly defined goals, and the ambition to attack them all play a factor. The good part of this method is that it isn’t that difficult. All you need a pen and paper and some creativity. Let’s get started!
If you would like to start your own savings plan, please do not hesitate to contact me at joe@budgetboss.ca.
“Wealth is just consistency… I don’t want to be rich. I want to be wealthy.” – Quavo
Email – joe@budgetboss.ca
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