Saving 10% of your income, every year, is recommended by SUM180, for everyone.
Why? Over and above paying for your regular living expenses and taxes, saving 10% of your income each year allows for the steady buildup of cash and other assets (home, investments, etc.) that will provide for your financial needs now and in the future.
One recent client was surprised when she received her Next Steps from Get My Plan and found that her first step was to top off her savings to 10% this year. We encouraged her to not get too worked up about it because she has two children in college at the time and her life was all about watching cell phone and other costs continue to hit on the monthly Amex bill. She said, “When I die, I want to come back as my kids!”
The data shows that if we are careful and save 10% every year, we will significantly reduce the risk that we will not have the money we need in the future. She reported that she had already started to look at all those extra expenses – the cable bill, the Internet subscriptions, the travel costs, to find areas to pare back. Does she really need Netflix, Hulu and Prime?
What counts in the “Save 10%” calculation in SUM180? We start with your annual income, less your annual expenses. From that total, we add your annual contribution to your retirement accounts, if any, and subtract your taxes for the year. The result is how much you are saving this year. Your savings percentage takes that number and divides it by your annual income.
Saving 10% of your income remains important throughout your life for keeping debt in check, providing the right cushion for emergencies, funding your retirement and for making sure you don’t run out of money during retirement itself.
So she’ll need to do some “catch up” when the kids get off the gravy train. We’re confident that it will feel good for her to get back on track.