The following is a guest post.
When you are young, retirement seems to be a lifetime away. Being told that you should save for that day is difficult to comprehend. But the fact of the matter is that even if we are young and healthy and fit, we have parents and grandparents who are older and we should take our cue from them.
Their standard of living should be an eye-opener for you. Do they battle to make ends meet or do they live comfortably with money left for traveling and dining out?
How Much To Save
It is generally accepted that you should save at least 10% of your annual income. If you can push that up to 15%, it will be so much better. There are those who advise that 20-30% should be the aim, but think about your living expenses up until your retirement.
You should first eat and then save. Sources are useful for viewing the wide variety of savings products available to choose from.
The idea is that you should steadfastly continue to put away the 10%, but in addition to that, set aside another 10% in an income-generating product.
The Alternative Income
To stop your day job and put all your efforts into a get-rich-quick scheme means you may falter on both counts. But sticking to your 9-5 job and starting something else on the side can work wonders.
If you can find something that you enjoy, let’s say it’s a hobby and you work one hour on that for every ten hours you work at your regular work, you have started on your alternative income.
A passive income would be ideal but is it possible? Even if you don’t like a specific idea, if you can work the idea and turn it into an additional income over time, it is going to come to your aid when you want to stop the regular job.
If the alternative income does turn into a full-time business over time, that’s good, but if it does not, it really doesn’t matter. What matters is that you find an idea or two that can keep your attention and that can start generating an income for you.
Your ability to earn an income is your biggest asset and that does not only mean working 9-5. It means generating an income from a small business or a hobby. You can earn more working for yourself than working for a boss.
You can also use 10% of your working time and invest that into developing your sideline. In other words, instead of saving the 10%, you can “save” 10% of your time to generate that extra income. If you continue to work at this and the income grows, there might come a time when you can bid your boss farewell.
Any additional cash that you are not using for daily and monthly expenses can be saved on top of your 10% saving. A visit to money saving websites will bring ideas for additional savings. Put your savings in online savings accounts so it won’t be easily accessible. So, if you can keep up the day job and start a side job, the combination of the two will work nicely when you want to retire.
This means you will retire with the retirement money from your work and the 10% you set aside yourself and you will have the income from the side job on top of that. By doing this, you should be able to get to your retirement rather sooner than later.
5 responses to “How Much Should You be Saving?”
This is such a great post for someone that is young and trying to establish a budget for themselves. I often wonder how much I should be putting away for retirement-not to mention if I should be doing something on the side for another job. Great advice that I’ll definitely be taking into consideration.
I currently put 26% of my income away for retirement because I didn’t realize the importance of saving earlier in life. The greatest thing a younger person can do is start saving early and let the compounding begin.
If you don’t know what you plan to do in retirement, how do know how much money you need.
I think 40% to 50% of net income is a great way to head toward financial independence.
One of the most common questions I get from readers (and curious acquaintances) is how much money should I have saved by 30