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.
I was surprised when I ran my own plan and found that I was not saving 10% this year. I did not get too worked up about it because I had two children in college at the time and my life was all about watching cell phone and other costs continue to hit on the monthly Amex bill. When I die, I want to come back as my kids!
Nevertheless, it was a good reminder that if am careful and save 10% every year, I will significantly reduce the risk that I will not have the money I need in the future. I’ve already started to look at all those extra expenses – the cable bill, the Internet subscriptions, the travel costs, to find areas to pare back. Do I 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 I’ll need to do some “catch up” when the kids get off the gravy train. It will feel good to get back on track.