How Much Should You Be Saving?

Save 10% of income, or 50% of a raise?

Save 10% of income, or 50% of a raise?

Saving money is difficult.  There will always be that trip you want to take, a fancy restaurant you want to try, and new electronics you want to buy (upgraded iPhone every 6 months).  The list goes on and on.  For these reasons and many others, getting in the mindset to save money is hard.

A big part of the problem is that there is no cut and dry answer of how much is the “right amount” to save.  Without a benchmark to follow or a coach to hold you accountable, it’s hard to get on the right path.

That is why I’m here; consider me your financial coach.  If you are saving 5%, then I’m going to push you to save 10% (at least I’m not asking you to drop and give me 20). Once you reach 10%, I’ll ask for 20%. I want you to be the best saver you can be for yourself and your family.

Like any coach, I do research in my field so I can be up to date on the industry’s newest thoughts, opinions, products, and ideas.  detailing two saving strategies that can help you get started.

As you know, I like to keep things simple, so here is what you should know.

Saving Strategy 1 – Save a Percentage of Your Total Income

This rule of thumb states that you should be saving at least 10% of your total income each year. That’s easy to understand and easy to follow. If you’re saving 10%, great! Keep doing it. If you aren’t saving that much, then maybe it’s time to reevaluate that budget of yours.

The problem with this strategy is that it can be difficult to get started. If you aren’t saving 10% of your income, it’s because you’re spending it.  If you are currently spending 100% of your income, being asked to take a 10% lifestyle cut isn’t easy, but it needs to be done!

Even though it seems difficult, or even impossible, you need to start somewhere.  If you can’t commit to 10%, start with 5% instead; make cuts wherever you can. Starting slowly will make the transition easier for you and your family.

Strategy 2 – Save 50% of Your Raise

The second strategy is to save 50% of your annual raise. With this strategy, there is no need to change your existing standard of living or reevaluate your current spending patterns (although you probably should either way).

When you get a raise, the goal should be to save 50%.  If we assume it’s a $10,000 raise, then $5,000 will be available for your current expenses and $5,000 will go to your savings.

What is the Impact?

Understanding the long-term impact of different saving strategies is complicated.  If you are saving only 10% of your income, then your annual spending is going up each year by 90%.  If you are saving 50% of your total raise, then your annual living expenses will go up in smaller increments and be lower in the long run.

If you have lower annual expense needs, then you will need less money saved to meet your retirement goals.

Which Strategy is Right for You?

For many of you, saving a larger portion of your raise will be easier than saving a percentage of your total income, primarily because you won’t need to adjust your current lifestyle.  No one wants to give up what they already have, but you may be willing to give up a little bit more later.

If you are currently saving a large portion of your total income, great job!  Keep doing what you are doing and challenge yourself to save even more.

If you haven’t begun saving yet, start small and start now! The sooner you get into good habits, the sooner they can find their place in your current lifestyle.


Image courtesy of Stuart Miles at

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