What Percentage Of Salary Should Go To Savings?
The simple act of saving money is the most important financial decision you make. It doesn't matter how much money you make, we are trying to create the foundation for a good habit, that of saving money and being accustomed to living with a smaller percentage of your salary.
What is the ideal percentage of salary that should go to savings?
The answer is very simple and it comes from the Bible, so you know it has to be correct.
Moses wrote in Leviticus 27:30 " A tithe of everything from the land, whether grain from the soil or fruit from the trees, belongs to the LORD; it is holy to the LORD".
Put simply, Moses says save 10% of your salary. Since Moses didn't have to deal with the tax man, let's compromise and save 10% of your net, after tax salary.
If you make $5,000 net per month, then take $500 and put it in a separate savings account. You don't want that money mixing with your chequing account otherwise you'll spend it.
It doesn't matter how young or old you are.
The best time to start the 10% saving rule is when you are young, even before you start your career. Parents, get you kids to save 10% from all the gift money they receive and I'll let you know what to do with the savings.
Do you have to start saving more as you approach retirement?
No, keep the same 10% forced savings plan. Keep reading and you'll understand how to save more money.
If you find that you have additional savings after the tax man, 10% automatic savings, mortgage, car, kids, food, entertainment and other daily expenses then you are on course to becoming financially independent.
You are truly in the position to focus on creating wealth in your portfolio. We can teach you how to manage your own money or we can provide you with newsletters designed to potentially generate profits when the market goes UP or DOWN.
What should you do with the monthly excess?
That's right, save it.
Should you bump the 10% automatic savings to 15%?
No, play a mental game where you try to create the largest monthly excess and use the high score as a moving target.
We are constantly writing articles on what you should do with your savings account but I must warn you not to put the savings in an emergency fund, GICs or Mutual Funds. You'll thank me after reading these articles.
The following article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.