Ever wonder how much money you should be saving? Is it 5% of your take home pay? 15% of your salary? 30% of your modified adjusted gross income less charitable contributions, unreimbursed gambling losses and weekly pizzas? It’s a good question. And while 10-15% of your income is a good general answer there really is no perfect answer, because it depends on you!
Savings rates in the U.S. are among the worst in the world, particularly so for those under 40. While the “baby boom” generation has, by and large, done a good job saving for retirement, they haven’t managed to pass those skills on to their children. Blame it on student loans, blame it on the price of gasoline, blame it on the allure of the latest iPhone; most people are saving far, far less than they should be these days.
When determining how much money you should be saving, consider things like:
- the cost of your next major asset purchase
- the time left until you make that purchase
- when you plan to retire
- the lifestyle you plan to lead in retirement
- your current debt load and the interest you are paying on it
- are you going to inherit a significant sum of money
It really is a complex interplay of a number of factors that should determine your personal savings rate. And finding that perfect amount and then directing it to the right combination of 410(k)’s, IRAs, real estate investments, and savings accounts is what makes for a great financial plan.
Here’s a helpful hint for a problem I’ve seen numerous times: people have heard they should have an emergency savings fund– so in their checking/savings account sits $5,000 $10,000 or even $20,000. Meanwhile, they are making minimum payments on a loan that is charging them 8, 10 or even 20% interest! “Pay off the loan” I say! You can (almost) always take on another loan if worse comes to worse, but that debt is guaranteed to accrue exorbitant amounts of interest month after month after month if you don’t pay off the balance.
Here’s another helpful hint: if you think you’ll just put whatever you have leftover at the end of the month into savings, you’ll almost never have anything leftover at the end of the month. Instead, have money automatically deducted from your checking account as soon as you get paid- just like you would your mortgage or car payment. Then live the rest of the month off of what is left over. I know, you don’t want to- but it’s the way to go.
Creating better financial habits is something that takes time, and sometimes a partner in the process. That’s why I’m here!
Think of me as part Fred Rogers, part Chuck Norris and 100% acting in your best interest!
Stock Market Lesson / Financial Tip of the Month
“Have a plan before entering the fray.” Whether you’re mapping out your long-term financial goals or day-trading Twitter it pays to have a plan before you get involved. As J. Peterman would say the best way to get somewhere you’ve never been (and probably don’t want to be) is to not know where you’re going when you start. Map out your purchases and sales and the reasoning behind them. Then, execute.
“Clue” originally meant ball of twine. That’s why you “unravel” clues to solve a mystery.
Calendar of Events
Did you get our e-mail last week? Tuesday, October 7 from 4-6pm is our annual Fall Happy Hour bash on the patio at Centro Latin Restaurant. All clients and their guests are invited as well as friends and business partners. We’ve got magician Shawn Preston coming to provide entertainment, some quirky giveaways, and more!
The summer of “Yardbusting” continued as a trip to East Boulder yielded a lawn that while not large, desperately needed to be mowed. Please join us next time on the morning of September 19 and help the elderly and disabled in Boulder county. E-mail me if you’re interested in joining the Chrome team.
Did You Know?
I speak to groups about any number of financial planning topics- from retirement and social security, to life insurance and college education planning. If you would like to have me speak to your group, contact me here.
Have a great September,
Steve Zakelj, CFP®
Chrome Asset Management