The way you see money changes as you grow. At one point you were little and had no worries about money. At another point, you became aware of the fact that you must have money to buy the things that you need.
Your understanding of money will soon go beyond what you need to have now. You will start to think of the future and how to have enough money when you stop working. This brings up several questions about money. You want to know how much of it you should be making right now and even how much of it you should be spending. Well, there are no definite answers to these questions but only rules that may help you make the right decision.
Let’s face it, you’re not going to be working forever. You will have to retire one day and you will want to know the amount you need to save to have a secured retirement and also what financial goals you need to meet at each stage of your life. As such, I will share with you how much you should have saved at every age — let’s get into it!
When it comes to money everyone knows how to spend it but only a few know how to keep it. That is why many people struggle with money. They know they need to save some and then spend the rest but the question is how much should you save? The answer to this question is not as simple as you may think. There are several factors that come to play when it comes to how much money one needs to save. For example, if you are married with kids you may need more savings than someone who is not married and has no children.
It’s important to know that we are talking about long term savings which are also retirement savings. This is the ultimate goal of most people as they are looking forward to having a comfortable retirement. Only a few people have enough savings for retirement. For numerous people, a small emergency will arise and all of their savings will be wiped out and they may even be forced to go into debt. So if you are saving towards retirement you need to know how much you need to save over the years.
It is easy to estimate how much money you will need for retirement. There are rules that can guide you and make the process easy. For example, the 25 times rule explains how to save enough money for your retirement. That is, you should save at least 25 times the amount of your current annual expenses. But what about the time before retirement? How much money do you need to save at each stage of your life before retirement to be able to reach your financial goal? These stages are called financial milestones and there are certain rules that will guide you to save enough at each stage.
Financial milestones are the financial goals that you have. They are the money goals you want to reach by the time you are at a particular age. It also explains how your priorities change as the years pass. Your financial need when you are 20 years will be different from your financial needs when you are 40 years old. These milestones are usually divided into a range of about 10 years as your life needs typically deviate in this amount of time.
There are 6 different financial milestones that will help you determine how much you need to save at every age. Keep in mind, this rule may not work for everybody as the conditions might be different. But the important thing is to have a plan for the future and make adjustments as needed. It is also important that you do not see the target as an exact amount but as a guide.
This will make it easier for you to reach your savings goal faster. The target is a range of values that has been calculated as the average savings of people in that age group. However, the circumstances may be different and what applies to some people may not apply to you. So it is best if you see the amount as a percentage instead. That way you will be able to save enough money for your retirement.
So, how much money should you have saved in your 20s?
This is the first milestone and it is from the ages of 20 to 29. Your early 20s are probably when you are just getting out of college and looking for a job. If you are in your early 20s it’s okay if you don’t have any savings because most people at that age don’t. If you have any amount of savings at this age I want you to know that you are doing better than a lot of people. One of the reasons why you may find it difficult to save during these years is because you are likely still deep in debt and servicing student loans. Another reason why it may be difficult for you to save at this stage is that you don’t have a means to -simply put, you may have yet to have started your career.
This stage, however, is the best stage to start saving. If you start soon enough the benefits will be more than when you start saving in other milestones. In your early 20s, you may start with saving as low as 10% of your annual income but you should increase the number to 25% as you get to your late 20s. You should get an Individual Retirement Account (IRA) to start saving up for retirement. Also, you should have an emergency fund that is up to 3 months of your income. This is the best stage to start learning about budgeting to know how to manage your finances.
But what about your 30s?
By this age, you should be entirely on your own and not dependent on others. That means you should have enough money to pay for your living expenses and all your other bills. You should also have cleared off your student loans at this age, as most people report that student loan affects their financial life and makes it difficult to save. However, if you haven’t cleared off your debt yet, then you should at the very least have a robust plan that you can follow to do just that.
At this milestone, you should increase your savings and make sure you have at least 50% of your total annual income saved for retirement and you should increase it to 100% with time. This means that at this stage your goal is to have the minimum amount of money that is equal to your annual salary in a retirement savings account. At this stage, most people are either married and have kids. So it is important that you should increase the amount you save if possible. This will speed up the growth of your money through compound interest.
Moreover, you should have an emergency fund that contains one year’s worth of living expenses to cover any unforeseen events. That way you can focus on investing more and building your retirement account. You should consider investing in an HSA and 401k and setting up a savings plan for your children’s education and also have aiming to have a credit score between 700 and 750. This is the age where you should invest more and diversify your portfolio while learning in order to stand out and make more money.
But what about your 40s?
At this stage, you are getting closer to the peak of your career and your salary should increase too. You should also focus on increasing your savings and investment as your income increases at this stage. You should have at least 3 times your annual income saved up for retirement. While focusing on saving for retirement, you should still continue to cultivate your skills at work in order to stay relevant in your field and ensure that your salary continues to increase in your older age.
Now, let’s talk about your 50s.
If you started saving early then this is the milestone where the results of compounding is very noticeable. Your money begins to grow more quickly than before because of compound interest. At this stage, you are expected to have at least 6 times the amount of your annual income in your retirement savings and the expectation is that you continue to earn more and more money every year as you get raises and promotions at work. You should also still maintain that healthy emergency fund containing one year’s worth of expenses.
But, how much money should you have saved at 60 years old?
This milestone can be rewarding if you have diligently followed your savings plan. If you started saving very early you would have increased your total savings because of the effect of compound interest. You are getting closer to the age of retirement and you need to clear off your debt to enjoy your retirement. If you bought a home with a mortgage loan you should have paid off everything at this age. You should also have at least 8 times your annual income saved for retirement. Remember, if you want to retire you should have at least 25 times your annual expenses stashed away at in this age bracket you should be earning at the peak of your potential.
Finally, how much money should you have saved at retirement?
At this stage, you are now ready to call it quits and enjoy your golden years, however that will only be possible if you have been diligent in saving over the course of your lifetime. At this stage, you have access to your money and you can withdraw from your retirement accounts without facing any penalty. You will also get some retirement benefits and social security but you should have 10x your annual income saved up for this stage.
Now that you know how much you need to set apart for each financial milestone it is also necessary to know how to work towards it. The first step in achieving each milestone is to budget your money. You will need to cut out unnecessary spending. This will help you to save more money.
If you have any debt, make plans to pay them off as quick as possible. Debts can really affect your savings as it is difficult to save money when you still have debts to pay. It is also important to have an emergency fund in case any unexpected financial situation arises. The emergency fund should be at least 3 months of your monthly living expenses and more depending on your age and risk tolerance.
Finally, think about your savings as a long term goal rather than a short term goal. This will help you remain focused and disciplined to keep saving money. Make plans to save enough money at each milestone. There may be times where you won’t meet your milestone goals for some reason. It may be due to you not starting to save early enough or having made some large impulse purchases. Luckily, by seeing this ultimate milestone as a worthwhile journey, you can remain focused and take the necessary actions to succeed!
In fact, setting up these financial milestones will offer you many benefits. First, it helps you achieve financial freedom early. It becomes easier to save towards your retirement when you have a financial milestone. It breaks down your savings goals into smaller, more manageable targets. You will know how much you need to save at each milestone and this makes it easier to work towards it. It also makes you think of savings in percentages and not some number that may appear to be impossible to achieve. Not to mention, it’s not feasible to set one number for everyone therefore the percentage method simply makes more sense. And with that said, you now know how much you should have saved at every age!