How much you need to have saved by age should be based on your own goals. The most common filter used for projecting how much you need to save is based on retirement, having enough money to draw from after you quit working a job. Historically this has been saving ten times your annual income by 70 years old so if your investments return 10% a year on average that is your income at retirement.
I will be using this metric of 10X annual salary to project out needed savings by age to reach that goal. Your own specific goal may be higher or lower based on your own monthly expenses, retirement benefits, and other streams of cash flow. Remember that this number will be a moving target as your income increases over the years and inflation grows you will also need to reset your number.
This savings should be converted to investments by keeping it in a retirement account like a 401k or IRA. This capital can also be invested actively with a system or passively with a portfolio plan using index mutual funds or indexes over 20 to 30 year periods. Dollar cost averaging can also help smooth out returns over the years.
The sooner you get started saving the easier it will be to grow an account over more time with the power of compounding.
How much money you should have saved up by every age:
Fidelity recommends the following age-based savings based on staying on the path to be able to retire from your job at 67. [1] Where recommendations weren’t given I made my own estimates based on their parameters and other research of average net worth and savings by age groups.
These savings estimates are based on your annual income at that age. So if you are making $50,000 a year at the age of 30 you should have already saved $50,000 into your retirement account. By age 35 you should then have $100,000 saved up. This is to stay on track for retirement.
What are 5 tips for saving money?
1. Stop eating out at restaurants so much.
It’s comparatively expensive to eat at restaurants versus to eat at home. Focus on groceries and eating in and not eating out too much and you will save a lot of money. Save restaurants for special occasions.
2. Avoid new cars and large car payments.
Big car payments will hurt your ability to save money. Look to buy a car a few years old and keep your car payment as small as possible. After your car is paid off, keep it for as long as possible and save what would have been a car payment. This makes personal finance much easier.
3. Take lower cost vacations.
Never go into debt for a vacation. Take vacations you can save for and afford. Better yet take a low cost vacation.
5. Move closer to your job for a smaller commute.
If it’s cost effective move as close as you can to your job to save money on the commute. Gas can become very expensive for long drives. Better yet don’t take a job that is too far away from your house.
5. Stay out of debt.
Debt is the opposite of savings. Savings is the earned money you have left over after bills. Debt is the owed money you have left over after your paycheck is already spent. To not be in debt you must not spend more than you make. To save money you must put away money above what you need for bills. You must choose debt or savings as your priority. Both don’t mix well.
How can I save faster?
There are two parts of saving money.
- Playing defense: Being frugal and focusing on what you will not buy and how you can save money on what you do buy.
- Playing offense: Focusing on increasing your income with higher pay per hour, a higher salary, working more hours, overtime, or a second job/side hustle.
Doing both of these make saving much faster than doing only one. If you cut your expenses in half and double your income then your saving is four times easier.
The best way to save faster is to increase your income. The best way to increase your income is to get a promotion or find a new job that pays you more for your experience.
Saving enough money for your age group isn’t easy. Saving the right amount to stay of track for retirement requires discipline. You must have discipline both in your career to increase your pay to keep up with inflation and also self control in your personal finances to not spend more than your make. A journey worth making for the financial peace and freedom it brings.