Unfortunately, there is not a nice straight forward answer.
You might be asking, “but everyone says to save 15% of my income, isn’t that a straight forward and easy answer”?
It is except for the fact that saving fifteen percent is for retirement savings. It does not cover all the other things that you should be saving for. (Find out exactly how much you should save for retirement)
Fifteen percent won’t cover saving for a car, a house, or that big vacation that you want to take.
To save for everything you need to be saving more than 15% of your income.
Exactly how much more?
To determine what you need to save beyond your retirement savings you need to create a spending plan.
A spending plan is where you keep track of everything that you want to buy in the future. This can include everything from a new couch, to vacations and kids college.
A simple list of items, costs and when you want to buy them is all that is needed for a working spending plan.
It can be handwritten or in an excel sheet. The more important part is that you can refer to it when you need to decide where to save or spend money.
The second thing that you want to do is rank what items on your list are the most important. It’s hard to save for everything that you want at the same time so you need to decide what you want more.
After you decide your priorities you can then calculate how much you need to save a month. This will be based on how many months till you want to buy the item.
Car budget: $20,000
Months; 35 months
Per month: $20,000/35 = $571.43 a month.
Finally add your current savings items into your budget. (For More on Types of Budgets)
I know this can seem overwhelming. It is already a struggle to save the 15% for retirement.
How exactly are you going to get your savings rate up above 15% to accommodate for everything else?
Here are a couple things to keep in mind when trying to increase how much you save.
Lifestyle management is when you structure your life to have the smallest amount of regular expenses as possible.
When you get your basic expenses as small as possible, it is much easier to save for everything in life. (And do more fun things along the way!)
As an example if a bank tells you that you can take out a mortgage of $250,000, don’t use the entire amount. Instead only by a $200,000 house. This will allow extra room in your budget not only for emergencies but savings too.
Manage your lifestyle and it’s easier to achieve saving 15% for retirement and everything else you want. This might require some hard decisions right now to adjust your lifestyle. But it is worth it to gain the financial stability that comes with having savings.
Don’t try and make major changes instantly. You will just end up frustrated if you try and go from saving 5% to 20% without an adjustment period.
Instead target increasing your saving an extra percentage every few months.
Remember, you can achieve anything that you want when you put your mind to it. Simply create a plan for how you are going to achieve it and then follow through.
Need help setting up a plan that you can achieve? Contact us about our financial coaching services.