There are many reasons you may be challenged to save money. Some of those could include a high cost of living, too much debt, overspending, lifestyle inflation, or lack of a budget. Saving money is a habit that can typically be developed by taking simple steps to cut expenses and increase income.
According to Forbes, "the cost of living is one of the biggest factors that make saving money difficult." The amount of money you spend on groceries, transportation, and other miscellaneous expenses is huge. Adding all these together will leave you with less money to save, and no one can live without these, right?
If you're struggling to save money, you're not alone. A worrying report from ME Bank in 2022 found that 1 in 5 or 22% of households have less than $1,000 in cash savings including 11% with less than $100. The report also mentioned that around 25% of single parents dipped into their emergency savings!
One of the most common types of percentage-based budgets is the 50/30/20 rule. The idea is to divide your income into three categories, spending 50% on needs, 30% on wants, and 20% on savings.
Consider an individual who takes home $5,000 a month. Applying the 50/30/20 rule would give them a monthly budget of: 50% for mandatory expenses = $2,500. 20% to savings and debt repayment = $1,000.
The general rule of thumb is to have at least six months' worth of income saved by age 30. This may seem like a lot, but it's important to remember that life is unpredictable, and emergencies happen. If you lose your job or get sick, you'll be glad you have that savings cushion.
Saving $10,000 may seem like an insurmountable task, but if you break it down, it's much more manageable. If you want to save $10,000 in a year, you'll need to shave $833.33 off your monthly budget.
CNN Money suggests that you start saving for long-term retirement goals in your 20s, as soon as you leave school.
New survey shows most Americans regret not saving enough for retirement among other concerns. Many Americans say they have financial regrets, including not saving for the future or having too much debt.
Not Focusing on Paying Down Debt
Having debt is one of the reasons many people have difficulty saving money. The urge to pay it off vs. save is strong. That's especially true if you're carrying revolving debt, like debt from credit cards.
The reasons that most people struggle financially will vary on the individual case but can include a lack of financial literacy, a scarcity mindset, self-esteem issues leading to overspending, and unavoidable high costs of living.
More than one in five Americans have no emergency savings
Nearly one in three (30 percent) people in 2023 have some emergency savings, but not enough to cover three months of expenses. This is up from 27 percent of people in 2022. Nearly one in four (22 percent) U.S. adults say they have no emergency savings.
"With an uncertain economic outlook for 2023, setting financial goals and saving for bigger purchases can seem daunting," Droesch says. With fears of a coming recession and inflation poised to stick around, goals like getting a raise or spending less on necessities might not be that feasible, by no fault of your own.
Although "Shark Tank" star Kevin O'Leary says he doesn't like to "peg a number" to certain financial milestones, he does believe there is a point in one's life where they should have at least six figures saved. "By the time you hit 33 years old, you should have $100,000 saved somewhere. Make that your goal.
If you retire with $500k in assets, the 4% rule says that you should be able to withdraw $20,000 per year for a 30-year (or longer) retirement. So, if you retire at 60, the money should ideally last through age 90. If 4% sounds too low to you, remember that you'll take an income that increases with inflation.
It is never too late to start saving money you will use in retirement. However, the older you get, the more constraints like, wanting to retire, or required minimum distributions (RMDs), will limit your options. The good news is, many people have much more time than they think.
Or, Save $25,000 and Then Wait a Decade
If you start with $1,000 and contribute $175 a month, 10% average returns will get you to $50,000 in 12 years — sooner if you count what's in your emergency fund.
Saving any amount of money isn't easy and a big sum like $40,000 is a huge accomplishment. Now it's time to figure out what to do with that big old pile of dough. If you have credit card bills, pay them first, and it's also a very good idea to have three to six months of living expenses banked in case of an emergency.
How to plan for retirement in your 30s. It's never too early to start dreaming big for your retirement, and it's never too late to start saving to make your dreams a reality.
Some people follow some general rules of thumb, such as people under 35 should aim to have at least three months' salary in their savings account. While those over 35 should aim to have six months' salary in their savings account per year.