Are you on track to achieve your goals? In other words, have you saved enough? And, how do you know how much is enough? Use the following guidelines to give yourself a Savings Check-up.
Even though the economy has been doing better, many people are still financially vulnerable, i.e., living paycheck to paycheck. According to a recent survey:
- One-third of survey respondents said they would not be unable to come up with $2,000 to deal with an emergency like an urgent home repair, medical crisis or car accident.
- Perhaps of more concern, one-third feel they might need $2,000 to cover an unexpected expense in the next month.
So how much do we need to save – what should we shoot for? The old Rule of Thumb was to save 10% of your income but most experts think that is too low; for example, a 25-year-old should try to save 25% including:
- Employee 401(k) contribution
- Employer 401(k) match contributions
- Cash savings
- Debt reduction
How do we know if we are on track for retirement?
By age 35: Have twice your annual salary saved.
By age 45: Have four times your annual salary saved.
By age 55: Have six times your annual salary saved.
By age 65: Have eight times your annual salary saved.
With financial planning, it is important to be flexible:
- Financial planning is not perfect science.
- The only constant is change.
- If you start saving early, great things happen later (COMPOUNDING)
- Life happens (house, kids, illness) – make adjustments as needed — save more or less in any given year.