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I'm in my 30s. What amount should I be saving?

Stable income, small debt from credit cards, student loans are all done. The Suzy Orman's of the world tell me 18 months of income is ideal, but what's a realistic goal for personal savings?

Jan 18, 2012 by Joseph from Wichita, KS in  |  Flag
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7 votes

That depends on what you want to spend money on in the future. Eighteen months is great to be sure you can pay the mortgage, car payment, and lifestyle expenses in the event of a lack of cash flow; the bigger question is what do you need to spend money on in the next two to five years and beyond. What is your collateral capacity? What I mean is do you have a pool of money you can access that will continue to grow when you need to "borrow" from those funds for an unexpected and/or planned expenditure. Avoiding or minimizing unnecessary wealth transfers (saving to spend), and accumulating an increasing pool of capital which provides accessibility and control via your saved dollars, accessible through collateralization, will put you in a better position when you are in need of accessing the cash due to a lack of employment and/or unexpected expenditures.

From your earned income, you have to push money into investments and savings. Each have a cost to access. When you pull money from investments, you have lost the opportunity to earn money on those dollars, you may have had to access the money in a down market, and there may be fees to access those dollars. If you pull from your savings, you need a plan to put it back, you may experience lost opportunity cost, fees, and if it is not an account that can be collateralized, you will start from ground zero each time you access the cash and attempt to replace it.

Understanding your need for immediate cash is the first key to savings; understanding long term savings is your key to financial success. Having access to that money, at the lowest cost, should be your first question. How many pools of money can you have access to and what is the cost to each pool in the long term.

1 Comment   |  Flag   |  Jan 18, 2012 from Grand Blanc Township, MI

I like the idea of "collateral capacity", that is a very good way to think about it.

Flag |  Jan 19, 2012 near San Diego, CA

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Back in the 1920s a little book called, "The Richest Man in Baylon," was published. It's a collection of parables about two hard-working and competent fellows who remained poor throughout their lives, only to see a childhood friend become the richest man in Babylon. So they seek out their wealthy friend to find out how he became so rich...

Bottom line is that you must embrace the concept of, "a part of all you earn is yours to keep." And what is the amount of earnings you need to keep for yourself? It's 10%.

Being in your 30s, if you shun debt, spend no more than 90% of your disposable income, and prudently invest the remainder for the long term, you should do just fine.

1 Comment   |  Flag   |  Jan 19, 2012 from Bryn Mawr, PA
Gina C. Wells, CLU®, ChFC®

The author is George S. Clason, I agree, it is a great book to read!

Flag |  Jan 24, 2012 near Grand Blanc Township, MI

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Hi Joseph, One of the best ways to save is through your retirement plan at work. You may contribute on a pre-tax basis or if the plan has a Roth provision, you may contribute on an after tax basis. The earnings grow tax free. In addition, your employer may offer a match. If you contribute on a pre-tax basis, taxes are deferred until you start withdrawing the money when you retire. For 2012, you may contribute up to $17,000 and for 2013, up to $17,500. If you are self-employed, consider a Solo 401(k). We recommend that you save from 12 to 15% of your salary. If it sounds like a lot, consider starting at a lower % and increase your deferral rate 1% each year until you reach your goal. No one has ever complained upon retirement, that he has saved too much money!

Comment   |  Flag   |  Nov 22, 2012 from Gastonia, NC

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I agree with Marty completely, It's that simple. My only modification would be if you have a family and are buying a house - or starting a business, 6% is an O.K start. Then ratchet it up until you get to the holy grail of 10%... and one day you will wake up financially secure!

Comment   |  Flag   |  Feb 17, 2012 from Port Washington, NY

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