The Proper Rate Of Savings

Fortunately for savers, banks and brokerages have made it much easier to put savings on auto-pilot than it used to be. Before the days of online savings accounts and ACH transfers people actually had to sit down and write a check to savings, or deposit cash into their savings accounts. Sounds archaic, I know, but it did separate the disciplined savers from the free-spirited spenders.

Today we have a variety of ways to save for retirement, rainy days and big goals. But deciding just how much to save is the tough part. Financial gurus all have their own numbers – 15% for retirement, 10% of your overall income, half of your income – I could go on forever. However, deciding how much to save is a personal decision that looks more like a balancing act than a hard, fast rule. After all, there are many competing priorities for our money.

The 10% rule

One of the more established ideas is to simply save 10% of your income. If you earn $50,000 a year, under this plan you should be putting away about $5,000 a year into a variety of investments and cash savings accounts. 10% should not be enough to break your budget, but it doesn’t cause you to stretch very far either. I prefer to aim higher with my rate of savings, but how much higher?

Dave Says 15% For Retirement

Dave Ramsey, the popular radio and television talk show host, advocates putting aside 15% of your income towards retirement. Using our last example, that would be $7,500 a year on a $50,000 income, or $625 a month. Dropping $625 a month across your 401(k) and maybe a Roth IRA seems like a good idea, but it will be hard to pull off if you have an over-sized mortgage, credit card debt, or a couple car loans. That’s why Ramsey advises listeners to get out of debt and save a cash emergency fund first.

The 50% Plan

If I could go back in time and talk to my 20 year-old self, I would tell him to save 50% of his income from the first day on the job. For every year you save half your paycheck, and live on the other half, you buy one year of freedom from earning an income. Sure, saving half your income now seems ludicrous, but that’s because we’ve allocated our income to paying for our expensive possessions, like our house, our car and our hobbies. If we lived on half our income from the beginning, it would have forced us into a smaller home, a cheaper car and more frugal hobbies (and tastes).

What Percentage of My Income Is Going To Savings?

About 20%. That number should increase as we continue to pay off debt, but for now I’m content with an 80/20 split of paying off debt and slowly building our emergency fund. When the emergency fund is maxed, I’ll redirect the money going there to a Roth IRA. When that’s maxed I’ll begin investing in taxable investments and social lending at Lending Club to hopefully fund my early retirement. Somewhere in there I also have two kids’ college savings plans to fund. Like I said earlier, lots of competing priorities!

How about you? How much are you currently socking away in savings?


  1. I agree with the first commenter, the amount is dependent on what’s going on in your life.

    We’re only saving about $300 a month (plus $200 in a 401k), which is a lot less than 10% of our income, but we’re also making major (and necessary) house renovations on our foreclosure which are being paid in cash. Once our emergency fund hits $20k, we’re going to start pouring most of those savings into the car loan and then into our mortgage. Luckily we’re still in our mid-20’s, so we’ll have time to play catch up with our savings once the ‘small’ loans are paid off.

  2. I reject the idea that there is any one proper savings rate. The percentage should change depending on changes in your: (1) Life Goals; and (2) financial circumstances.

    There was a day when my wife and I were saving 80 percent of our post-tax income. There have been other times in my life when I saved zero percent or went into debt. That can be entirely appropriate. For example, going into debt to go to school or to get a start-up business off the ground makes sense.


  3. Including both saving for an emergency fund and retirement saving, we’re currently at approximately 32% of our gross income.

  4. Thruout life I’ve been all over the board. I tend to always use the payroll deduction for the full amount of whatever pension plan my employer had available. Then I fully fund my IRA each year. In addition, whatever oddball chunks of change come my way, like refunds etc, I put into retirement savings also.

    There were years tho, due to extremely low income and starting over again after a divorce with a new mortgage, that I was not able to fund it. BUT, when the mortgage was paid off and the house sold, I made up for it as best I could.

    Now that I am “almost there”, I continue at about 10% on the payroll deductions for the 401K, and fully fund the IRA each year.

  5. We are currently saving 30% of our salary (80K salary / 24K yearly savings.

    We have a three month emergency fund already in place so we are sending about 15% to retirement (401K and Roth), 10% for the kid’s college, and 5% into taxable investments.

  6. I completely agree with the first comment. I too believe it is different for everyone.

    I spent a few months building up our baby e-fund, nothing big, but enough to cover us when issues arrive. It came in handy a couple weeks ago when the transmission went out on our blazer.

    I have a really hard time saving, seeing savings accounts getting 1.4% at best, meanwhile debts and bills rack up 5, 6 even 10%.

    For us, now that we have a decent baby efund in place, we also save $50 a month in one account to cover the vehicle tags once a year and $200 a month to general savings. But other than that, every penny goes towards paying off debt. To me, paying down debts at 10% vs saving at 1% is like earning 9% in the end.

  7. Thanks for posting this . . .

    I’m 43, single and make $47,500/year.
    10% goes to a 403B
    6% (with 3% matched) goes to a TIAACREF
    And I contribute $5000 to a ROTH every year.

    I do well on investing for my retirement, but where I lack is in ‘regular’ savings. So, I have beefed up a $5000 Emergency Fund . . . and am trying to build other small savings ‘pots’ – a pot of $ for a Auto Needs, a pot of $ for Yearly Vacation, etc. I’m VERY lucky (and I know it) in that I have no debt and no mortage to pay off nad have chosen to not have kids so I am trying to focus on the idea of Early Retirement. My retirement account losing 35% last year sucked, so my goal of retiring at 55 is temporarily on hold.

    I LOVE reading these types of posts and comments. Thanks again!

  8. I am currently 25 and I save 50% of my income and it goes into various account.

    1. RRSP
    2. House saving account
    3. Emergency fund 1
    4. long term account
    5. Medical
    6. Vacation/Gift/Hobbies account

    My parents taught me the value of saving since i was I kid. I had 1 saving account I couldn’t redraw money from. I only was able to use the account when I moved to university. I opened another account when I was 12 where I put part of my babysitting money and that was my spending money. I’m not the one taking care of my parents. They are both retired and lost a lot of money due to the recession.

  9. Easier said than done. I am in mid 20’s and make what a recent grad would typically make, living in an expensive city. I try to save what I can but 50% is not possible, even when I have no debt at all. Can’t be expected to save that much because I like to have fun and enjoy myself. Sure I try to do it more frugally than others, but you have to enjoy life also. Tough to balance both, but 20% is realistic not 50%.

  10. again it depends on your income. I make twice as much as most of my friends the same age as me. I got lucky and got my dream job out of school and have received 2 promotions since then. When ever I got a raise I never changed how I live. I still go out and enjoy life and have fun.

    My weakness is seeing 4-5 broadway productions a year at almost $100 a ticket.

  11. All of you people who are saying you cannot save more for reasons like “home repairs, having fun, etc…” — those are just excuses and lifestyle choices you made that are putting those at a higher priority than saving. If you don’t make saving a priority today, there will always be some reason or excuse you make to spend your money on something other than saving. And if that’s your choice, that is perfectly find, just realize that you do have a choice.

  12. I’ve always considered paying down the mortgage as a form of savings- an investment in my future anyway. Since the house is paid for, that’s that much LESS than it will take for me to live on during retirement, so I will be able to get by on less than others who still have to make a mortgage payment in retirement.

    So while that’s not formally ‘savings’, it’s a non-expense during retirement.

  13. Your theory of living on 50% of what you earn is nice but not possible for a lot of people these days. Right now I’m supporting myself and 2 teens on about $25k gross a year, so living on only half of that, even without debt, just isn’t possible. Nor could have I have done that right out of college. What I would have advised my younger self is to get a second or even a third job. I was used to working full time and going to school full time, so I could have handled it, but I was too lazy! lol But it makes me almost sick to think what socking away a part-time income for even just 1 or 2 years in my early 20s would have compounded to now.

  14. So much depends on your station in life. A single person earning six figures might be able to salt away 50% of his paycheck. A person with a family and a $50,000 income may not be able to put away anything. The one size fits all rules are a tad overblown. There are times in your life when you may be able to save a bunch, and others where life is calling, and you have no choice but to answer.

    Back in the “old days” people often saved larger percentages of what they made, certainly greater than 10%. But we’ve been blessed/cursed to live in an age of standards that are hard to live beneath because of custom, societal norms or even enforced laws (think of auto insurance and the progressive tax code here).

    My grandparents were shameless savers, but they also grew up in a time when it was common to share living quarters with extended family, food could be purchased from the farm down the road, and people didn’t have insurance, cable TV, cellphones or internet connections.

    In so many ways it really is harder to save today.

  15. @Kevin – it’s still a choice not to save rather than to save sometimes. One can live without the cable TV,(I do), cellphone, (again without) and internet connections (available at library and at work), food from the farm next door is still available in our area or at the farmer’s market or I grow my own garden in the front yard instead of a lawn, and the option is still there to live with extended family or take in a renter.

    Most people choose not to do those things, or chose not to do without those things – therefore their choice is to spend the money on them rather than to save the money. None of those fall under necessities (except the insurance if you have a vehicle) in my book. The money is available – but it’s a choice not to save it.

    Don’t let customs or society influence your savings! Savings is all about YOU 🙂 Be brave – set the new trend – Save 🙂

  16. Marci (17)–I actually agree with you, but I was pointing out why so many people aren’t able to save and why blanket assumptions don’t necessarily hold up in real world conditions.

    If you look at the savings statistics (we’re now UP TO 2.-something percent on the national savings rate) there’s something that’s beyond the scope of “ought to” that’s happening here.

  17. I totally agree that the percentage of savings will necessarily vary per person and family. That said, I think 10% is the smallest that makes sense unless someone is living in abject poverty and in that case every penny may need to go to sheer survival. So, that 10% applies to everyone who are able to provide themselves the basic necessities with a little surplus. I agree with Dave Ramsey’s approach, that once you have $1000 short term emergency savings in the bank, you focus every dime you have on getting out of debt. Once debt-free other than mortgage, deposit every dime you can squeeze out of your living expenses into your savings account until you have a min. of 3 mo expenses accrued. Then, in terms of a regular savings percentage you’d put aside after that, I think the person’s age, years until retirement, and other considerations have to be taken into account. At this stage, though, I’d say a minimum 15-20% should go to savings. Given that I’m 47 with only a few years of insufficient savings under my belt, I’m in the category of needing to make up for lost time – so my saving contributions will necessary be a higher percentage than someone in their 20s who put 10% aside since they were young.

  18. I love the 50% idea in that it kind of shocks people into really thinking deeply about how much money they could really be putting away. If it pushes people to save even 5% more than they are now it has helped them. I also think you have to save in your own way. For example, I almost never go on vacation even though my household income is quite high. I save that money. However, when we bought our most recent home I made sure there was a formal office space in it even though this made us spend a lot more on a house than otherwise. I work at home and can’t have my occasional client see me working in a laundry room or on the living room couch. So my income allows me to make choices like this but I absolutely don’t spend to the limit and anything I spend money on I do with a purpose to making more money. Oh yeah – we’ve bought one new TV in 10 years and that one cost $150. Other people buy TVs for like $2,000!!!

  19. Having been disabled most of my adult life, I would have told myself to go get part-time work at age 8 and save as much as possible. Then, when I got my first full time job, save 90% and live on 10%.

    And no, I don’t get SSI.

  20. I hope nobody’s using this as a poll of America’s savings. The people who read these articles are probably not close to a cross section of American savers. I know several people close to 50 years old that haven’t saved a cent. I also know some people who’s debts outweigh their savings. I’ve lived well below my means for most of my adult life, doing with less than I could afford and probably have saved much more than average but I haven’t figured it out to a percent. I do know that when you retire, as I have, it sure feels good knowing you don’t have to worry about paying your bills or where your next meal is coming from.