Most people think when they start earning more money, they’ll start saving more money. But what often happens is the more you make, the more you spend. If you want financial independence,
you have to establish a savings routine. The more money you make, the more your savings rate needs to increase.
While it may seem like a daunting task, it can be accomplished. The only way to reach financial
independence is to save and live within your means. Your savings should include retirement account contributions, matching funds from
your company if available, cash savings, and any other investments.
Savings at Every Age
Your 20s: You are just starting out and, hopefully, you’ve found a good job that pays a reasonable
salary. This is the beginning of the accumulation stage, so start by paying off any debt you have and work to save at least 10%–25% of your
income. If your employer offers a 401(k) plan, start investing right away. Try to contribute as much as possible or at least as much as your
employer will match.
Your 30s: Hopefully, you have now found out what you want to do for a living and have had a jump in income. You are still in the accumulation
stage, so you should be increasing contributions to your retirement account and trying to contribute the maximum per year. By the end of your 30s, you’ll want at least twice your annual salary saved. A simple example: If you’re making $50,000 annually, you’ll want to have $100,000 accumulated in savings by age 39. But remember this includes retirement accounts.
Your 40s: This is the decade of major responsibilities, as you probably have dependents. Your income may have increased as you climbed the ladder at your job or moved to a
new one. And even with the increase in expenses, you should also be increasing your savings rate. By the end of your 40s, you should
have saved four times your salary. Now you will want to max out your contributions to retirement accounts as well as monitor your investments
for performance.
Your 50s: You are now at your peak earning years and your saving rate needs to be at its highest. Your expenses are still pretty high; but by the end of this decade, you will most likely be an empty-nester, and expenses should decrease. By the time you reach 59, you’ll want to have saved seven times your income. Monitor your investments so you can make adjustments to
increase your returns.
Your 60s: You’re getting close to or have retired. Your mortgage may be paid off and expenses have decreased. Your saving should be at its peak, which is 10 times your income prior to retiring. You can now start to relax as you will
receive distributions from your retirement accounts as well as Social Security benefits. You’ll need to make sure that you are informed
about distribution requirements of your retirement accounts.
Your 70s and beyond: Now all of your expenses are covered by your retirement account distributions and Social Security benefits. Hopefully, you are reaping the benefits of all those years of saving.
Watch for These Warning Signs
As you go through the journey to retirement, you may not be able to accumulate the level of savings you need, but you should have acquired a good amount of savings for a comfortable retirement.
Take stock of how much you are saving every year and look forwarning signs that you are not saving enough. If you experience any of the following, you need to take a hard look at your financial situation to get on track:
You have no idea how much money you’re spending every month, which means you are most likely overspending.
You don’t have savings goals or a savings plan. If you don’t have goals and a plan to achieve
them, you will have a hard time saving for important milestones.
You’re living paycheck to paycheck. It’s time to take a serious look at your finances to see what can be reduced or eliminated.
You’re putting off saving for retirement. It will get here quicker than you think, and this is
the one thing you really need to start saving for as early as possible.
You can’t pay your credit card balance in full, which means you probably have significant debt.
You don’t have an emergency fund. You know the unexpected will happen and need to be prepared.
Frankly Speaking
“When they call the roll in the Senate, the senators do not know whether to answer ‘present’ or ‘not guilty.’ ” -President Theodore Roosevelt
“I never gave anybody hell! I told them the truth and they thought it was hell!” -President Harry S. Truman
Whether you pay income taxes on April 15 or file for an extension, PLEASE be sure to do so. And get your final 2020 Traditional & ROTH IRA contributions in by then. Consider a monthly Systematic Investment Plan to help budget your contributions and ‘Pay yourself first!’ for 2021.
An extension to Oct. 15 is usually available IF you request it and pay at least 90% of the tax due. You also have until then to make 2020 contributions to SEP and SIMPLE IRAs which offer tax advantages to the self-employed with different filing guidelines. Do you know what they are or how they could help you? If not, it’s time we spoke. Please contact me ASAP!