How much of my Income should I save?

On your journey towards financial freedom, saving is crucial because it serves as a bedrock for investing, enables you to achieve your financial goals and provides a level of financial security. Since saving is essential, the next question becomes “How much of my Income should I save?” or “how much of my paycheck should I save a month?” There is no clear-cut answer to this question, as it varies from one individual to the other. Money experts have said you should save at least 20% of your paycheck each month. That number seems fair enough, however, you want to ensure it fits into your budget and your savings goals.

In determining the amount to be put aside monthly you might want to consider a few factors such as: savings goal, timeline, as well as affordability. If you have debts like credit cards or loans, they should take priority over savings because the interest rate on this type of debt is usually higher than the interest rate you can earn on savings. Let me quickly state that saving doesn’t necessarily mean investing, however both are important on your journey towards financial freedom.

With that said, let’s dive deeper into the subject matter.

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WHAT ARE YOU SAVING FOR?

How much of my Income should I save – Image Credit (Pexel)

What are you saving for? Setting a SMART savings goal would provide you with a rough estimate of how much you should set aside to reach the target. You could be saving to build an emergency fund, for a house deposit, for retirement, travel, education debt repayment. Once you determine your why, the how, what, when, where will fall in place.

How soon do you need to reach your goal? When you have a savings goal, the amount required, it helps to set a timeline for hitting your target. Some timelines are easy to set for example, saving for a vacation in a year or have the down payment for a house in 3 years. For others such as retirement you may want to have a benchmark like having x amount in your savings account at a certain age.

What can you afford? Saving money is important, however it must not be at the expense of putting yourself in financial difficulty. Your savings each month should depend on your financial capacity, ensure that your basic NEEDS are met like housing, feeding, transportation, utilities etc. This can be determined by preparing a monthly budget that provides a clear picture of your income versus your expense.

Planning is the most important step on your journey towards financial independence. Start small, increase the amount you save when your income rises, living below your means.

ABOUT THE AUTHOR

pfmAcademy is committed to helping young professionals become intentional about their finance through practical personal financial management tips.

Before I joined PFM Academy, I was just a classroom teacher and a lover of make-up. Like, if I were taken to a drugstore on a blank cheque, I will go for all the makeup items in that store. Then, one evening I had a 1-1 session with Tolu from PFM (we use to be church members during our childhood) and she asked how I was doing in my profession. I complained on how “Teachers take home, were unable to take them home here in Nigeria” she asked of my passion and encouraged that I could use that to start a ‘side blessing’ that’s what she tagged it. During the lock down I enrolled for a makeup course where I came out second best and boom! I began my side blessing after that. I makeup people for good money and yes, I still buy makeup products but this time, I buy for people and then make my profit. Thank you, Sis.