Are You Using The 10% Savings Rule To Your Benefit?

You have probably heard about the 10% savings rule.  This “rule” says everyone needs to save for retirement 10% of any income received.

There really cannot be a hard and fast rule as to the percentage of income you should save.  The financial situation is different for everyone.

If  you are a young person in your 20s saving 10% of your income can accumulate to a good sum when you reach retirement age.  However, if you are in your 40s or 50s or beyond when you begin saving, 10% will not amount to very much when you retire.  Older people will need to increase the percentage of their income they devote to savings.

How much you will need to accumulate for later years depends on several issues.  If you have a very upscale lifestyle now, in order to maintain the same lifestyle you will likely need to save more funds.  You  might want to consider downsizing your way of life in your later years to reduce expenses.

If you have a decent pension plan you will not need to save quite as much money on your own to provide for your retirement years.

Don’t be discouraged if you are not able to start savings 10% of your income immediately.  Save as much as you are able to start.

You can increase your ability to save money be cutting down on discretionary spending.  Buy a couple fewer fancy coffer drinks each week.  Eat dinners at home more often.  Try brown bagging lunch a day or two each week.  Making small changes to your spending habits will result in more money to save.

If you are carrying a balance on your credit cards from month to month work to pay off the balance.  Paying the high interest rates to credit card companies is stupid.  If you only pay the required minimum monthly payment it can take fifteen years or more to pay off the credit card account.  You will be in much better shape financially if you get rid of revolving credit card debt.  Only use credit cards if you can pay the balance in full each month and avoid paying interest.

Ideally, you will be able to live on 75 to 80 percent of your income.  Use the other 20 to 25 percent to fund your retirement savings, establish your emergency fund, contribute  to your favorite charities and devote some of these funds for your comfort and enjoyment.

In addition to saving for retirement you should have an emergency fund to cover your normal expenses for a period of at least 3 months and preferably 6 months.  You never know when something might happen and your income will be disrupted for a period of time.  An emergency fund will allow you to pay for unexpected costs such as car repairs or replacing appliances without resorting to the use of your credit card.

The 10% savings rule is not set in stone.  It is a guide, but everyone has his or her own financial situation.  It’s great if you can afford to set aside 10% of your income for retirement starting at a young age.  If you are older you’ll need to set aside more than 10% to reach your goal.

Whatever amount you determine to save set up a direct deposit so you never even handle these funds.  After a few months you will not miss the money being automatically transferred from your paycheck to your savings account/

After you have accumulated a nice amount of money in your retirement savings account look into investing these funds for better growth.

When you are young retirement seems far away and you think you have plenty of time to save.  Before  you realize it you have reached middle age or beyond with not retirement savings.  Don’t let this happen to you.  Start saving regularly as soon as possible.