Saving is a great habit, and one that people have many different approaches to (some healthy, some not). One of the most common questions financial advisers encounter is “how much should I be saving this month” (quickly followed by “why should I be saving”). This article is going to overview some of the reasons to save, and some of the methods to tell if your approach is in good shape or not.
Giving yourself a guiding post – make a savings goal
As human beings, we’re always best motivated when aimed at a specific goal. Develop a savings target or aim, and a plan to satisfy it. Once it’s satisfied, move on to your next goal, but always be striving for something in particular to keep your motivation up.
The Law of 10%
A good general rule of thumb for saving is that you should be putting away at least 10% of your income. This is a good amount that will add up quickly, but that also doesn’t hurt too much to pull from your pay check.
This can be replaced by a dollar amount commitment you make to yourself, the point here is to be consistent in your saving. This is habit forming and helps you to accumulate savings quicker.
What to do with debt
People often panic when in debt, throwing money at it and trying to make it go away, with no thought for their savings account. The truth is that if at the end of the day you don’t have a savings account, you’re going to rely on debt again, so it’s wisest to balance your approach to debt between repayment and savings dedication. If you’re in debt, try to push at least 10% of your income towards the debt repayment, and 10 towards savings, providing you with a cushion for the future once you get out of debt.
The feeling of saving
Ever noticed how some people seem to always be struggling, but always spending, and how others seem to be doing fine, but often claim they can’t afford a drink? This is a classic symptom of being out of touch with your saving.
When you think about how saving should feel, it should pull at your paycheck (representing its level of priority for you), but not necessarily strangle you with stringent rules and regulations.
Overly stringent saving often results in spending binges that are just as destructive as not saving at all. Be practical, assess the feeling, it should be comfortable but tight. You can afford to eat out every now and then, just don’t be doing it every night of the week.
Reassessing your saving
Periodically take a look at what you’re doing and ask yourself how it’s helping. Are your savings growing? Are you getting where you want to be? It’s okay if not, it just means an adjustment is needed.
Even if you are getting to your goals, are you getting there at a speed you’re comfortable with? The key here is evaluation. Take some time with your partner every month or so and evaluate how you’re doing financially.