In general, the general advice is to save 20 percent of one’s income each month.
Try the 50/30/20 rule devised by Senator Elizabeth Warren, a university teacher of bankruptcy law:
- 50% of the monthly budget for essential expenses such as rent and food
- 30% for discretionary spending and entertainment
- 20% for savings
This recommendation to save every 20 percent of one’s income makes sense. But it is not always so simple to apply in everyday life.
The good news is that those who save 20% of their earnings will, in about 40 years set aside 25 times their annual income.
Basically, after 40 years of saving you can stop working for 25 years. All without giving up your usual lifestyle. Yes, it is a simplification, but it gives enough of an idea.
On the other hand, if setting aside 20 percent of your income doesn’t seem like a feasible goal at the moment, don’t get frustrated.
Saving is first of all a habit.
Source: financer.com
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Learn about other financial best practices
Good financial advice #16 | Balance your portfolio every year
If you set up your financial plan with the idea that savings should be used only in emergencies, you will certainly avoid finding yourself without a savings fund to draw on.
Good financial advice #15 | Use savings only for emergencies
If you set up your financial plan with the idea that savings should be used only in emergencies, you will certainly avoid finding yourself without a savings fund to draw on.
Good financial advice #14 | Keep your savings aside
Savings are part of the monthly budget, so you can easily manage income and expenses and in case choose to change the budget for a month if there are pressing needs to be met.
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