Skip to content

February 25, 2013

Do you know how much to save?

This is a question I am asked frequently.  I respond with “it depends” followed by a series of questions.  There are many rules of thumb used to answer this question.  A “rule of thumb” is a rough and easy estimation.  It is not based on a specific situation.

Following are some of the questions that should be asked.  What is the purpose of the expenditure? How important is the expenditure?  Is the expenditure something that is needed, wanted or just a wish?  What are the alternatives?  Is the cost known?  When will the expenditure be made?  An estimate can be calculated once the variables are identified.

The savings and the variables need to be monitored.  Life is a journey with many twists and turns.  There will be many unanticipated expenditures, opportunities and windfalls.  You need to identify what you did not plan for so that you can identify when you need to change what you are doing

Financial cycles may impact your ability to meet your expectations.  The available rates of returns will vary.  If you anticipated too high of a rate of return, you will save less than you planned.  If your earnings do not grow as much as you anticipated you will have less than you expected.  If your living expenses increase more than your income you will not meet you goals.   If the reverse happens you will save more than you planned.  That is easier to deal with than not saving enough.

You should monitor your savings and review your goals at least annually.  The sooner you adjust to adverse events, the easier it will be modify what you are doing and improve your ability to achieve your goals.
Back to Top

Share your thoughts, post a comment.

You must be logged in to post a comment.