Planning for the future – and for the unexpected – requires long-term preparation. How much money do you need to set aside for your retirement? What about for emergencies such as home and car repairs, medical bills, or job loss?
If you get a head start by saving in your early 20s, most financial analysts agree that 10-15% of your pre-tax income should be set aside each month. However, this number varies according to the age at which you begin saving. Professionals who begin saving in their 30’s should aim for 20.1% percent each month. Those who put it off until their 40’s should save a whopping 43.2% of their monthly income.
As the numbers reveal, the earlier you start saving, the better. Starting in your 20’s or 30’s gives you the advantage of time, which keeps the monthly percentage low and consistent. While saving in your 20’s may sound like overkill, it most certainly pays off in the long run. Not only will your nest egg be bigger down the line, but you’ll get to keep more of your monthly income later on.
Investing in a retirement package like a 401(k), IRA, Roth 401(k) or Roth IRA, can greatly assist in setting aside and growing your savings. Many employers who provide 401(k)’s will match a portion of your contribution, increasing your funds.
If you’re struggling to set aside the suggested percentage, review your monthly expenses and identify areas where you can cut-back on spending.
Once you’ve comfortably set-up your retirement fund strategy, it’s time to start budgeting for an emergency fund. If you plan to have a family, you should additionally consider planning an education fund. Senior Vice President of Charles-Schwab, Carrie Schwab-Pomerantz, states that an emergency fund should have “enough cash set aside to cover three to six months worth of non discretionary expenses. Keep this money in a savings or other liquid account. You won’t earn a lot of interest, but you will be increasing your financial security.”
Depending on your position and stage in life, your monthly income savings will vary. It’s important to review your needs and expenses to determine what you can realistically stow away today, and how you can gradually increase this number over time. Planning for retirement is one thing you don’t want to put-off no matter your age or status. You should also set aside funds for a rainy day. You don’t want to have to dip into your retirement fund in the event of an unexpected tragedy. Plan ahead in order to stay ahead of life’s twists and turns.