Savings and retirement estimators are helpful, but often misleading, tools. These calculators can be insufficient to determine how much money you should be saving based on a few calculations.
It’s not wise to solely trust calculators to tell you if you’re adequately prepared for an emergency or retirement. In addition, some people trying these calculators may be so discouraged by the numbers they see that the tools end up not helping at all.
If you looked in a financial planning textbook, an individual should be saving 10% to 20% of his or her gross income. However, that number, in and of itself, doesn’t tell the entire story. To estimate how much money you should be saving you can’t rely on general advice. And maybe that isn’t the right question to be asking anyway. Maybe instead of asking how much should you be saving, you should ask yourself how much can you save? Are you saving as much as possible?
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In a time when many Americans live without an adequate safety net, prioritizing savings is increasingly difficult for many people. Here are a few things to consider as you start thinking about your savings goals and how to ramp them up.
Lifestyle Choices Affect Savings
One of the biggest obstacles to savings is living outside of one’s means. Acquiring debt, installment payments and frequent “Keeping up with the Joneses” spending binges consume funds that could otherwise be saved and earn interest. That probably doesn’t come as a surprise to you, but what if you are living within your means? Your money decisions money can still have an impact on your ability to save. We all can do better.
Not being purposeful in aligning your current spending with your priorities will undoubtedly leave you falling short of achieving your goals. I have seen many people who say being prepared financially for retirement is extremely important to them. However, when you look at their finances you quickly see that they’re spending a major portion of their income maintaining their current lifestyle.
For example, I knew one man who was saving 6% of his gross income in a retirement account, while also receiving a 3% match from his employer. The problem was that he was also spending, on average, 20% more a month than what he made, running up credit card and home equity debt while depleting his savings. While he was saving for his future, at the same time he was destroying his current wealth and on the path to financial distress.
The Curse of Instant Gratification
Another problem many families face is the drive for instant gratification. Instant gratification is a curse to savings, in part because of the ease and convenience of both online shopping and digital banking. Advancing technologies facilitate spending money, and consumer demand drives technology’s march forward.
More than simple wasteful spending, instant gratification may sometimes include necessary and functional purchases — just at the wrong time. For example, many people like driving a new car with the latest technology, but do you really need it? You may need a car because of where you live or your job, however do you need to purchase the latest model factory delivered with all of your specifications?
Ways to defer gratification include:
- Make a list of wants, and save toward large purchases so you can pay in cash. These don’t have to be major purchase like a home or car, but could be a family vacation, a new washer and dryer or that new Ultra 4K TV.
- Use a debit card for purchases, not a credit card. If the money isn’t in the account, don’t make the purchase.
- Leave credit or debit cards behind completely and use only cash.
Basically, don’t blow your money. Simple enough, right? But even the rich and famous can have trouble with that concept. Take Johnny Depp. His business managers, whom he is suing, say his “lavish spending” — $30,000 per month on wine, $200,000 per month on private jets and reportedly $75 million to buy homes, a horse farm in Kentucky and several islands in the Bahamas — has put him in dire straits.
Saving enough for wants, emergencies and other unpredictable expenditures means having enough money left over from paychecks to save. For many this will be a difficult change to make. It will mean that you are willing to exercise financial discipline and delay purchases until you can afford them while also meeting your savings goals.
Conclusion
No calculator or estimator can come up with the exact amount for any one person to save. Knowing what to prepare for is personal to each individual situation. Every person who wonders how much to save must first examine a larger picture that includes long-term financial goals, lifestyle choices, spending habits, wants, desires and necessities. It is a personal decision that deserves thoughtful contemplation and strategic financial planning.
If you are currently wondering how much you should be saving to reach your version of financial success, you can always reach out to a Certified Financial Planner. The time you take now to prepare for your financial future can make all the difference in your long-term quality of life.
-
Peacock Cracks Down On Password Sharing: What To KnowPeacock is the latest streaming service to crack down on password sharing. Here's a look at which services are cracking down and how to save on streaming.
-
The IRS Is Sending Up to $1,400 to One Million People: Are You Eligible?Tax Credits A million taxpayers overlooked a valuable tax relief during the pandemic.
-
Five Year-End Strategies You Can't Afford to MissInstead of making New Year's resolutions, consider making some money moves that could help save you big bucks on your taxes.
-
Buying an Insurance Policy: Three Ways to Do ItYou can buy an insurance policy through an insurance agent or broker or on the internet. Which way works best for you?
-
10 Ways Your 1031 Exchange Can Go Horribly WrongDon't let your tax-saving strategy become a financial nightmare — discover the hidden pitfalls that could turn your 1031 exchange into a costly disaster.
-
From Entrepreneur to Retiree: Boosting Your Business' ValueWhen business owners contemplate retirement, their first step should be maximizing the value of their biggest asset. Here are a few steps that could help.
-
You've Got a Trust: Now Who Should Be the Successor Trustee?You've set up a trust to protect your assets and your beneficiaries, but you still must choose the right person to execute your wishes. Here's how to do that.
-
Three Ways Fiduciary Financial Planners Put You FirstFiduciary financial advisers are required by law to work in your best interest. Here's how they are key to intentional and efficient financial management.
-
How Long-Term Care Insurance Has Become More FlexibleToday's long-term care insurance offers retirees more appealing options, which can preserve assets and protect the financial stability of a healthier partner.
-
Your Loved One Fell for a Romance Scam: What Not to DoConfronting them probably won't work, but asking them some key questions and urging them to take certain actions could.
