How Much Annual Pay Should I Be Saving

March 10, 2012 by staff 

How Much Annual Pay Should I Be Saving, How Much Annual Pay Should I Be Saving? – It’s hard enough a lot of the time to get through to the end of the month with any money left to pay your bills, let alone thinking about the future and how much you should be saving for rainy days, retirement and such things but it is something you really should be thinking about.

How Much Annual Pay Should I Be Saving?

How Much Annual Pay Should I Be Saving?

The first steps to doing anything is acknowledging that it needs to be done so the fact you have asked yourself the question is a great start. There are certain things that you should have in place and be saving for that are firstly important, in my opinion. I am not a financial advisor or anything but I do write about frugality and saving on my frugal blog Frugal Zeitgeist and am getting myself out of a financial pickle. So here is how much of your annual pay I think you should be saving and what for.

Emergency Fund
First off I think you need to establish an emergency fund. This is an easy and direct stash of cash for emergencies and rainy days. An easy figure for this is to always keep it topped up at $1000 but these days I prefer $2000. Keeping it toped up will always ensure you have money quickly available to hand for emergencies. If the fund is short you should always work to add to it each month to keep it level.

Extended Emergency Fund
Secondary to the $1000 quick fund I think you need an extended fund to cover periods of extended sickness or if you lose your job. 4months equivalent of your income should be minimum here but up to 1 years worth is ideal.

This is the big one. Most specialists will recommend that you save around 20% of your income towards retirement but that obviously changes depending where the money is going and how late you are starting. Ideally you need to be working towards having at least 70% of your current happy living standards to last you until death. So if you live on $2000 per month comfortably, plan to retire at 65 and live to 100 then you need $1400 per month for ages 65-100. That’s at least $588,000 in savings as an example. Remember social security may well be dead by the time many of us reach retirement age!

Holiday Fund
Who doesn’t need a holiday? The best way to deal with it is to have a monthly fund, it’s far better than paying on credit card and then having to pay it back later, in fact going on holiday on credit is irresponsible in my eyes! Work out how much a standard holiday costs and then look to saving 20% higher than that each year. The funds will accumulate year on year and enable you to holiday even if things don’t go so great one year in the future.

Of course depending on your situation you may have other funds such as kids college funds or saving up for a mortgage deposit and such things. You may also have debts which I personally think should be zapped before you begin but many others advise against this!

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