One of the biggest unanswered questions of all time is how much money should I
be saving every month and while you would assume this would be an easy
question to answer the reality is that finding the right answer is anything but
easy this is due to the fact that most people either don't save it all and can
offer a viable solution or those who know the answer will only tell you if
you sign up for their $5,000 mastermind and quite frankly neither of those
solutions are gonna get you anywhere therefore in this video I'm gonna
explain exactly how much you should save every month in order to be rich and if
you're new to the channel then hit the subscribe button below for more a
life-changing content when it comes to how much money you should be saving
every month the answer is it depends now before you rage close this video let
me tell you why you see how much you save depends entirely on your goals most
financial goals can be broken down into three categories short-term goals of
less than one year medium-term goals between one year and five years and
long-term goals of five years and longer common sense would indicate that saving
up for a short-term goal like that vacation you wanted to go on at the end
of the year would require you to save less money every month then saving for a
larger long-term goal like accumulating $500,000 in your retirement account and
as you would imagine saving money in order to be rich is not something that
will happen overnight which is why I like to classify it as an extreme long
term goal and as promised I'm going to share with you exactly how much you
should save in order to achieve this goal and reach financial freedom one
would think that saving up to become rich would require you to save the
majority of your income every month and while saving eighty or ninety percent of
your monthly income would definitely exploit the process of becoming rich the
reality is that you can save much less than this amount and still hit your
financial goals so how much should you save the rule that I stand behind is
saving twenty percent of your monthly income and you may be thinking well why
not fifteen or twenty five percent instead don't worry I'll get to that
based on numerous analyses assuming you're in your 20s or 30s and can earn
an average investment return of five percent a year you'll need to save about
twenty percent of your income to have a shot at achieving financial independence
before your tool to enjoy it here's the thing if you want
to work like a dog every day until you die maybe you don't need to save all
that much money sure you'll still wanted an occasional vacation and something in
an emergency funding case your car breaks down beyond that however we save
so that one day we no longer have to work for most of us that they won't come
for many decades but there are regular working people who reach it as young as
40 or even 35 and quite frankly this should be everyone's goal assuming you
can start early and yes if you were able to save a larger percentage of your
income then you can become rich sooner with the ultimate goal being the ability
to retire and this concept comes down to the 4% retirement rule that states that
you can live off your savings if you can accrue 25 times your annual living
expense which will take the following timeframes based on three saving
percentages I've mentioned in this video at 15% you can accumulate 25 times your
annual living expenses in 46 years at 20%
it takes 41 years and at 25% you can start your retirement in just 37 years
as you can see by saving 20% of your income you'll hit 25 times your annual
income in just over 40 years that means the 30 year old to start
saving today assuming no prior savings will hit this target by 71 if you save
less than 20% it will simply take too long for your money to grow to a point
where will allow you to live off just interest admittedly there are a lot of
people out there that can't afford to save 20 percent of their monthly income
every month it could be due to poor spending habits or that they are pushing
hard to pay off their enormous student debt if this sounds like you don't
stress saving something is better than saving nothing one approaches suggest
for people who are just starting their savings journey is to start small save
just 1% a month then when that seems manageable increase it to two percent a
month and scale the savings target up until you hit 20 percent as I've
recommended as you've come to realize unless you can save a ridiculously high
proportion of your monthly income you will need to be saving for years to
amass a significant wealth because of this I highly suggest you have a
financial plan and the budgeting technique I recommend is a fifty thirty
twenty method if you're unfamiliar with this technique
we briefly explained how it works every month you divide your income into the
following three ways 50% is designated to living expenses like rent utilities
and groceries the next 30% goes towards entertainment
costs like going out to eat or seeing a movie
the final 20% is meant to go right into your savings account now while you
should be saving 20% of your income every month that doesn't mean you should
be saving it in the traditional sense most people make the mistake of saving
money and letting it rot in their checking or savings account and this is
a terrible money mistake you see the average savings account yields just 0.09
percent interest annually which means that even if you have $50,000 in savings
you would earn a measly $45 in interest I can promise you that that forty-five
dollars a year is not gonna make you rich and as I previously mentioned in
order to strike a rich saving twenty percent a month you need to be earning
an average annual return of 5% which will require you to leverage the power
of investing this process of building wealth will take a few decades to pull
off which is why you need to keep things as simple as possible as a result I have
found the most effective way to manage long term investing is to rely upon a
Robo advisor for those unfamiliar with Robo advisors here's a quick rundown of
what they are and how they work Robo advisors are software products that
can help you manage your investments without the need to consult a financial
advisor or self manage your portfolio you usually open a Robo managed account
and then supply basic information about your investment goals through an online
questionnaire Robo advisors and crunch the data you provide to generate an
asset allocation approach and build a portfolio of diversified investments for
you that meets your target allocation percentages for those investments once
your funds are invested on an ongoing basis the software can automatically
rebalance your portfolio that is make the changes to the investments needed to
align your portfolio back to a target allocation this way you can assign a
minimum targeted return of 5% which will keep you on track to hit your ultimate
savings goal in your intended timeframe as easy and reliable as this process can
be there are always people who want to race to financial freedom and for those
people I will now share three ways you can do just that
the first way you can hit your savings target
Esther is to lower it this is common sense it will take a lot less time to
save up a thousand dollars than it will a million dollars but as I said before
the amount you save is directly proportional to the amount you are
trying to accrue over time however lowering the savings target means
lowering the value of your future wealth so the next two points are ways you can
speed up the saving process and keep the goal of being rich in tact the second
way to speed up your achievement of the millionaire status is to increase your
monthly saving percentage as you saw saving twenty percent of your monthly
income will allow you to accrue twenty five times your annual living expenses
in 41 years but as their savings percentage rises that time it will take
to save a fortune decreases so how fast are we talking saving fifty percent of
your income every month will allow you to reach your savings target in just
twenty six years and seventy-five percent will have you in the top tier of
wealth in just 21 years now these savings amounts probably seem
ridiculously high for most people you may be saying to yourself twenty percent
is a stretch seventy-five percent seems impossible and yes very few people can
actually save this a large proportion of their income generally the people
achieving this high level of a savings percentage are frugal high income
earners or those whose expenses are significantly lower than the average
person like someone who lives with their parents nevertheless if accumulating
wealth is one of your top priorities then even if you can't save 70 or 80
percent of your income you should strive to save as much of it as you can because
even a few percent can shorten your savings horizon by years the final way
to expedite your path to riches is to leverage retirement accounts and
employer contributions for simplicity sake the numbers I have previously
shared relate to before tax money going in assuming that you'll pay taxes on the
money coming out but tax sheltered retirement accounts like 401ks and IRAs
change that equation for the better if you take advantage of these accounts you
can get away with saving 20 percent of your net or after-tax income most
employers have retirement account programs for their employees and if
yours does and you qualify then you should absolutely use it money
contribute to a Roth IRA now comes back to you tax-free when you're older so the
more you save in a Roth the less you'll need to save in total because you won't
have to pay taxes on the Roth withdrawals in retirement contributing
to a 401k will also help ease the pain of reaching
20% savings rate because most 401ks included an employer contribution
component essentially your employer contributes money to your retirement to
supplement whatever you contribute yourself up to a certain percentage of
your salary so if your employer offers a 5% match then you really only need to
say 15% of your paycheck plus if you're putting money into a 401k this money
will be deducted from your paycheck before taxes which means that each
dollar you deduct will save you some after-tax cash let's use an example to
illustrate how this full process would work on a monthly basis every two weeks
you make $1,200 which is $1,000 after-tax as we've previously discussed
your savings goal should be 20% of your after-tax income or $200 from every
paycheck if you make a pre-tax contribution to a 401k of 5% of your
paycheck and it's matched by your employer that means you put aside $60.00
from your check before taxes and your employer kicks in another 60 that's 120
dollars into your retirement account every month and your after-tax paycheck
is only reduced to nine hundred and sixty nine dollars you still owe
yourself $80 you could put half into a Roth IRA for additional retirement
savings or send it off to be invested using your Robo advisor this means after
all that saving your take-home income is still 889 dollars every two weeks which
is only about 11 percent less than your previous paycheck of a thousand dollars
by taking advantage of your employer match and pre-tax deductions you managed
to almost double your savings rate talk about bang for your buck and there you
have it the complete answer to exactly how much money you should be saving
every single month to be rich thanks for watching if you want to go from the life
you have to the life you deserve then hit the subscribe button now