Since you are on this page, we assume that you have recently started working and decided to save some money for your future. Well, we would like to congratulate you on this decision to save. It is essential to get the right guidance so that you can save enough each month. Usually, the saving amount should depend on your goals. Let us learn more about some of the fundamentals that you should follow while saving money.
While saving money, you must consider three types of goals. The first goal should be a one-year goal. This is the short term goal, and it can be as simple as a vacation plan or a gadget that you are planning to buy for yourself. The second type of purpose is the mid-term goal. Usually, the duration of this is between 5 years to 10 years. The mid-term goals can be similar to making a down payment for a car or a home, fixing your home, or any other significant expense. The next type of goal should be a lifetime goal, which is nothing but retirement.
What is the ideal saving percentage?
You should save at least 20% of your earnings for all these goals discussed above. Out of these savings, 10% to 15% should be reserved for your retirement. You can avail the benefits of 401k as the employer will match the savings in this case. The advantage is that this way, you will be able to bump up your savings by a significant amount. The remaining amount should be divided into the mid-term and the short term goals. For example, you are saving 10% for your retirement; then, the remaining 10% should be divided for other purposes.
In this 10%, 7% can be saved for mid-term goals. You can even make an emergency fund for the mid-term goal. The emergency fund should be enough to cover up the expense of 3 months to 9 months. It will undoubtedly take some time to build these funds. While saving for the emergency funds, you would need to factor in your living cost.
The remaining amount should go towards your short term goals. You might feel that the amount is not significant, but the amount is enough for you to save for small purchases or even vacations. We recommend you to not depend on the credit as you will pay a significant portion as interest. You will be losing money in that case.
A lot of people follow the 50/30/20 Rule for their savings. As per the Rule, you should not spend more than 50% of your salary on the necessities. You should rent out a property considering this expensing limit. The rest 30% of your paycheck should go towards discretionary items. Now, you are allowed to spend less than 50% & 30% respectively. Like we said earlier, 20% of the salary should be saved. This is the same recommendation given by the 50/30/20 Rule. As your salary grows, you can start saving more.