Why Saving 25% Should Be Your Goal

If 25% of your focus and energy was channeled differently, how much of a difference would that make to your life?

Today’s newsletter looks to answer that question.

Money

I recently came across a graphic from a YouTube Channel called The Money Guys which changed my outlook on how much of my monthly paycheck to save & invest.

They argue that we should all be striving to hit a 25% savings & investing rate of your monthly income.

This might seem a bit high, but to answer the why of this recommendation, the reason they give is because of the impact on your future retirement.

Taking myself as a test case as a 30 year old, if i were to save and invest 25% of my monthly salary from now until 65, i would be able to replace in retirement 119% of my income. (This assumes a 6% annual rate of return on investment).

I’d basically be getting a pay raise in my retirement.

Even if i were to have start at 35, i’d still be able to replace 84% of my income, which isn’t too shabby.

I like aiming for 25% as a savings & investing rate for a few reasons.

1. It’s slightly more ambitious than other common advice, such as the 20% recommended savings & investment rate from the 50-30-20 budget.

2. The demand you put on yourself to save a quarter of each paycheck by it’s very nature forces you to be on the ball when it comes to making financial decisions / tracking your financial outflow / keeping to a budget where you don’t leave yourself room to have too much frivolous spending.

3. It sets you up nicely for a stress-less retirement where you don’t have to worry about making large-scale adjustments to your lifestyle to make sure that your money doesn’t run out as you enter the latter years of your life. The caveat here is that the younger you start achieving this savings rate the more well off you’ll be, with the reverse also being true should you leave it too late to think about how you’re going to fund your retirement.

Mindset

With all that said, i do realise that for many people saving 25% of their income may seem unrealistic or even impossible.

Mortgages, bills, holidays, birthdays, food & drink. All of these things added together on a monthly basis may mean that you’re nowhere near achieving a 25% savings rate right now.

That’s completely ok.

This 25% rate can be something that you look to build to over time.

If you’re currently only at 10%, next year look to increase that to 12%. Then to 14% the year after that and so on it goes.

This won’t be an overnight process. It may require living a more stripped back life in terms of your regular expenditure.

You may need to re-evaluate your living situation and your core expenses and make a change to free up more of your monthly cashflow.

It may require constantly progressing in your job and your career to that you’re able to allocate a lower % of your monthly income on needs and therefore increase your savings rate.

Getting to the point where you’re able to save 25% of your income regularly point will likely require a mindset shift from short term gratification to long term stability & tranquility.

Despite the difficulty, having a goal to aim for which you know will lead to a more stable and secure financial future for yourself is powerful.

There’s a sense of pride and happiness you can take in making decisions your future self will appreciate.

Do not be discouraged if sometimes you’re not able to hit the savings figure you had hoped to. Life happens. Some years you may smash it and get there, others perhaps not.

Regardless, you should have a target savings rate to aim for.

Hopefully, i’ve done a good job explaining why i think 25% is a good one to choose

See you next week,

Zain

Some News!

Thanks to everyone who got in touch after last week’s newsletter saying they found it useful / helpful! Definitely made it clear to me that i’d made the right decision to stick to what i said i’d do!

So, onto the news. I’m now offering some 1:1 financial consulting for anyone who is interested in getting some assistance or advice with how to go about achieving their financial goals.

As an ACA qualified accountant and personal finance enthusiast, i’m sure i’ll be able use my experience and knowledge to people’s benefit.

This is for everyone, regardless of where you are in your financial journey. If you’re interested please fill out the following form and i’ll be in touch to set up a time to speak https://eu.jotform.com/form/233086136375054