What % Of Your Income Are You Saving Away?

By: ispeculatornew
Date posted: 03.20.2013 (3:00 am) | Write a Comment  (4 Comments)

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savings-piggybankIn 2008, 51% of US workers said they had $25,000 in total household savings (house included)… that’s bad. But wait, it gets worse. The most recent report is that there are now 57% of workers with less than that amount. In a world where we can’t depend on the government and private companies for our pensions and where even counting on banks preserving our capital is no longer a given, how most workers could approach retirement without any savings is beyond me.

I’ve said it over and over. The key to building a massive portfolio is not the asset allocation or even stock picks but rather how much money is put in and for how long. It’s not rocket science. I understand that when you make $20,000 per year, it can be very challenging to save much. But most of us make more than that and while it’s easy to increase spending levels by buying houses, cars and other “stuff”.

There Is No Right Amount

Some say you should set aside 10% of your salary. Others say it should be 5% or 20%. I don’t think there is one right answer. Here is my method. Early on, when I started working, I set up an automatic savings process where on every payday, an amount gets sent over to my brokerage accounts. It was a fairly small amount. What I did then was key. Since that day, every time I get some kind of raise, I increase the amount that I’m saving by that % or more. It’s been a very gradual process but it’s worked incredibly well.

Obviously.. this is not sustainable, especially in a world where we live longer and get less contributions from the government:


Some of us have special circumstances such as being unemployed but for others, I can’t think of a good excuse to not be saving a significant part of your income…

I’m curious, what are your thoughts on the current savings rate?

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  1. Comment by KB — March 20, 2013 @ 10:50 am

    I do not think it so much as the percent as understanding the tools and buckets required. The First Bucket is the Emergency Reserve Fund or Cash Flow Reserve Strategy developed by Harold Evensky. This should be no less than three months and in the CFRS method as much as two years.

    Second, in the USA the first $5,000 ($100/week) of income should go to a ROTH IRA. Contributions can be extracted as they have already been taxed and earnings can be developed tax free overtime.

    Thus, if someone makes $20,000 we are discussing 25% but the principle can be accessed in case of an emergency and the earnings can grow tax free until 59.5.

    Once the ERF and ROTH IRA are fully funded the individual can move on from there.

  2. Comment by Pam@Pennysaverblog — March 21, 2013 @ 3:27 pm

    I think you are right – there is no correct percentage that you should save, and there is no correct amount. The key is that you are saving, period, and that you are taking into account the cost of living when you want to retire. If you want to live large during retirement, you had better start saving a lot more than the next guy who just wants to live a simpler lifestyle.

  3. Comment by IS — April 2, 2013 @ 7:31 pm

    @Pam – Yes, absolutely, it’s all about savings!

  4. Comment by IntelligentSpeculator — April 2, 2013 @ 7:30 pm

    @KB – Very well said yes, I do have my own bucket system as you know and agree with the idea.

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