We- the working class adults, should prioritize savings because it saves us from sudden income disruption. The Covid pandemic proves this to be true. Any sudden disruption of our income flow, tends to wreck us when we do not have savings to endure hard times.
According to Lending Tree, 30% of American working class adults actually went into credit card debt as a result of their income being disrupted by the pandemic. Not only did they get into debt, but also 40% of these got into debt because they lost their jobs. So, how much do you actually save per month to avoid situations like this one?
It depends on three factors. Namely:
- Monthly salary: Your monthly salary determines your monthly expenses and savings.
- Age: Your age determines what your earning power should be and how much you should have saved by certain age.
- Location: Although there are expenses which eat into your monthly salary, your location can contribute to you spending more than an average American working class adult. As a result, you could be paying more in rent, food, bills or gas expenses.
Besides these three factors, here are other things you should consider when trying to figure how much you should save monthly.
What Are Your Saving Goals
Before I talk to you about a reasonable amount to save monthly, you have to understand what you are saving for. It is easy to save, when there is a specific goal behind it. This is where you decide whether your saving goal is strictly a long term or a short term goal.
What do I mean by this, my good reader?
By long term goals here, I refer to saving for emergency fund, kids’ college funds, a house or retirement. On the other hand, short-term goals may be saving for a vacation, a car or something else. Once you figure it out, you are able to prioritize your savings.
What should you prioritize in savings?
You create a scale of preference to show you which saving goals is the most important. The most important saving goal should be at the top, while the least important is at the bottom. I recommend saving for one goal at a time. This is to avoid getting overwhelmed. After all, you have monthly expenses you have to take care of.
What Expenses Are Likely To Disrupt Your Saving Goals
Now you know what your saving goals are, the challenge to saving for your goals is unregulated expenses. Having a firm grip on your monthly can save you a few hundred dollars to thousands of dollars a month.
Besides necessary expenses, other expenses like eating out, indulging on expensive coffee or hitting the bars with friends on a daily or weekly basis could amount to a fortune monthly. Remember your expenses are money you are missing out on saving.
I am not saying to not eat out, enjoy a good cup of coffee or bar hop with your friends. Rather, I recommend identifying how much each costs you weekly. For example, you can identify whether your friendship cost you a lot of money monthly. Then, find a monthly total of such expenses. Finally, curb or limit those expenses.
In addition, you can find ways to save on coffee or eating out. You can either eat out once a week, find cheap alternative cafe or brew your own coffee. To keep track of your monthly expenses, here are some best expense tracker apps to help you manage them.
Saving Goals By Age
What should your savings be by age, good reader?
It should be a certain percentage or a multiple of your annual salary. If you are younger than 25 years old, the percentage of your income which should be saved is 10%. Here is an example:
Let us say you are a 22 years old who makes $25,000 annual after-tax income, you should save at least $2500 a year. This is the equivalence of saving $227.27 a month. When you divide the $25,000 annual after-tax income by twelve months, your monthly income is exactly $2272.72 a month.
If you are an avid reader of my blog, you will realize it is possible to save from this monthly income while taking care of expenses. Of course, this is with the help of a monthly budget. I mean I talked about it on How To Create A Personal Budget For Yourself. Did you read it yet?
You may not agree, but any young working class adult under the age of 25 in this income bracket, has no business having a total monthly expenses greater than $1500 a month. As long as your income has not improved beyond the income bracket above, live within your means.
This includes driving an economy car, living in a cheap apartment or avoiding owning credit cards. If you are single, stick to studio apartment. If not, a cheap one bedroom apartment will help you save a lot. The same goes with the kind of car you drive, places you shop and other means of saving monthly.
Is saving 10% good?
How much does 10% save you?
Saving 10% of your salary matters, because it is a realistic amount of money to save. Also, it accumulates with improving salary. If you save 10% of $40,000 annual after-tax salary, it is $4800 a year. Now, compare to your expenses, it is nothing.
This is because it means $35,200 is going somewhere else. Now, do you see why ten percent of your annual salary is the minimum you can do?
This rules only works for people under the age of 25 making less than $30,000 a year. It is important you stick to this rule, so you can have something to show for every year. In a way, it is like paying yourself first, since a huge part of our income go to other people like rentals, bills and such.
To conclude, you do not have to stick with 10% of your monthly income. If you could do better than it, please do by all means. The more you can save, the better you can increase the freedom in your life. The ten percent rule gives you a glimpse of how much you should save by age 25.
How much should 35 year old have in savings
You should be able to save up to 40% of your annual income by age 35 each year. Again, we are going with percentages here and not specific amount of money, since everyone does not earn the same amount of money. The goal here, as with the WeeklyBagel Personal Finance Blog, is to help you lower your monthly expenses and increase your savings as you age gracefully with me.
This probably sounds contrary to what you are used. I mean the part where we are subconsciously taught to spend more as we earn or age more. Am I right?
Well, it is because our American consumerism culture has created this norm where our monthly expenses increase as we get older and earn more. But, it should be the other way around. This is because one is expected to be matured and wise, when it comes to managing money as one gracefully ages.
In other words, you do not need the silly things you had to get to impress friends around this age. This is because you may have a family to take care of. Or, you are focused on improving your life and earning ability. And even better, impressing other people around this age does not matter at all any more.
So yeah, you should be able to save 40% of your monthly income. There is not excuse, except one created by us. If your expenses have made it such that you are unable to do this, then it is left for you to acquire trade skills to increase your income or simply decrease your living expenses.
Right now, I save about 40% of my monthly income. When I was 25 years old, I saved 10% annually making about $25,000 a year. Most went to bills. As a man in his early thirties, I can save 40% by living frugally. When my lease expires in October 2023, I will downgrade further to be able to save additional $6000 annually.
If I could do it, you can do it too.
It is all about being willing to give up some comforts, which are not necessary to save for a specific goal. Nothing strengthens an adult’s heart than money. It gives you the freedom to disagree with people who cut your check and not be worried about losing your job.
What Should You Aim To Save Each Month
Although all the above are recommendations, it may not fit you due to your income-expense ratio. This is why I recommend taking your necessary expenses into account. Then, curb the unnecessary ones. If you are able to do this, the money which would have been going to the unnecessary expenses is saved.
This is where you start.
If you cannot save because your necessary monthly expenses eat deeply into your monthly income, then it is time to get a second job, a better paying job or acquire a new skill. Or even better, you need to budgeting apps to help you control your monthly expenditures.
Why am I telling you, my dear reader?
Saving money is a duty every young working class adult needs to fulfill for himself or herself. This is because it is the same as paying yourself first, before giving bill companies their shares of your hard work. And, when you think about it, most of us really give a huge part of our paycheck to these guys with nothing left for us- the ones who worked hard for it.
It is almost like the system is set up for us to work to enrich these companies, right?
Well, you beat the system by aiming to save at least 10% of your monthly paycheck. When you do this feat, you will be happy because you will have something to show for every year. You will not merely exist. It is how you lift yourself up decade by decade, until you are able to find ways to make your savings work for you.
Starting with at least 10% of your monthly income as a saving goal is how you slowly become financially free, friend.
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