How much money should I save?
So I’ve been thinking a lot about what to do with my money once I have saved up all of my 2007 taxes. This will be the first time ever that I will be able to decide what I want to do with all of my extra money.
Right now my current rate of saving is 18% of my total income. I have $150 coming out of my account every week, which goes into my investment accounts. This means that I am saving $7800 per year. I’m saving aggressively because know that I need to get as much money as I can into my mutual funds now. The sooner I have the money in there, the more time my money has to grow and the less I will have to save in the long run.
I’ve figured it out, and as long as my financial situation doesn’t change, I can afford to save 38% of my income. That’s almost $15k a year! I can afford to do this because my standard of living did not increase when I finished school and got a job. I continued living frugally and since I work from home I don’t need a car, or to spend any money on traveling, which frees up a lot of cash.
My boyfriend and I are thinking about buying a house sometime soon, but we want to move to an area where houses are much cheaper. We could end up buying a house that costs the same (if not less) than what we are paying for the condo we’re living in now. We will also not have maintenance fees to contend with and will have a tenant supplementing our income.
If you’re asking yourself how much money you should save, I would say as much as you can afford. Especially for those who are young. Figure out how much you need every month and put the rest into a good mutual fund that will give you a 10% to 15% rate of return.
Right now I still owe myself $4000 for taxes, but for the future things are lookin pretty good!
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Great job. I agree with saving as much as you can within reason. If you start saving by your late 20’s, saving 10-15% will do a great deal for getting you into very strong financial shape. Saving more is wonderful and might let you retire early or provide a cushion in case investment returns are not great and for financial difficulties later in life (losing your job, choosing a job that pays less, only being able to find a job that pays less…). I think if you are saving above 15% that is great, but if it is causing you great difficulty (and you are not forced into that situation by failing to save when you were in your 20’s and 30’s) then saving 15% would be a very good achievement.
I think the absolute best life long strategy is to take a portion of any income increase and devote it to savings (and at least a portion (say at least 50%) of that to retirement savings” (in addition to saving for a house, car, emergency fund…) before you get used to spending it. As you mention, the earlier you start saving the longer you have to take advantage of compounding investment returns (which Ben Franklin called the 8th wonder of the world).
Comment by John Hunter — June 16, 2007 @ 7:08 am