How much we should be saving?
I’ve got a rule of thumb that I love, and I wanted to share it with you today. It’s not always going to work, and depending on the stage of life that you’re in the balance may have to shift a little, but it’s a great concept to come back to whenever you’re doing your budget and setting up new savings goals.
I call it the 50 / 25 / 25 rule.
50% = Needs
Basically, use 50% of your money to cover the things that are required for basic living, things that you need, but don’t necessarily want. Like housing, groceries, bills – all the boring stuff.
25% = Recreation
The next 25% you get to spend on the fun stuff. This is dining out, entertainment, holidays, clothes, whatever it is that is a regular part of your life that doesn’t fall into the need category, it’s the wants, the things that make life worth living.
25% = Savings
The remaining 25% you put toward your longer term goals, your savings and working toward financial freedom for your future. This isn’t the boring stuff at all, this is making sure that you can do even more of the fun stuff later on.
You might find it hard initially to commit 25% of your income to saving for longer term goals. But give it a try and each time you get a payrise or increase in income, just think about this little rule and try to increase what you’re putting away rather than just absorbing your payrise into your daily living costs.
It’ll surely pay off in the long term and over time you won’t even notice the difference.