How Much Should You Be Saving?

Do you ever wonder how much of your income you should be saving? Having recently listened to a Vanguard podcast on “Can thrift make a comeback” and revisiting the classic “The Millionaire Next Door” it occurred to me that many people don’t know how much to save. This is very apparent when we start to look at the Personal Savings Rate in the US.

Prior to the recession, as the market was starting to rise, in 2005 the savings rate actually was negative at one point. This was pretty bad according to the article U.S. Savings Rate Hits Lowest Level Since 1933. It isn’t until recently that the savings rate has started to rise. Now some ecomonist are saying that the recession recovery might take longer because we are saving too much money! This is odd because the savings rate is only about 5%, which isn’t even close to the amount Thomas J. Stanley and William Danko of The Millionaire Next Door say most affluent households save.

Dr. Stanley says that most millionaires save 15 % to 20% of their income. How do they do it? They play great defense. To put it another way, they are frugal. It all boils down to living below your means. In order to live below your means, you might need to know what your means is to start. That is as simple as grabbing your last tax return. Look at line 22 or total income, and multiply that number by 0.2% or 0.15%. That is how much you should be savings. If you total income is $100,000, you should be savings $15,000 to $20,000.
Rich Feight is a Fee-Only Certified Financial Planner and founder of IAM Financial, LLC in Michigan. He is also the author of Thinking Beyond Numbers, the financial planning and investment blog changing the way the world thinks about money. You can learn more about Rich at IAM Financial, LLC.

About the author

Richard T. Feight, CFP®

Among independent financial advisors, Mr. Feight is one of the most well known and highly respected “Fee-Only” financial planners. Since 1997, Rich has dedicated his career to offering low cost “Fee-Only” comprehensive financial planning and investment advice. Rich assists his clients in organizing their finances so that they can retire on time.Rich is a graduate of Michigan State University where he received his degree in Finance. Rich has earned the Certificate of Financial Planning from The College for Financial Planning in Denver , Colorado that was comprised of intense graduate level classes grounding him in the various foundations of financial planning. He is a CFP® (Certified Financial Planner®) since 2001, meeting the experience, education requirements and passing the two-day, 10 hour exam, making him one of the few in the country who hold the designation. Since 2003, Rich has subscribed to the stringent and mandatory annual educational hours, experience, and code of ethics to meet the requirements to be a NAPFA Registered Financial Advisor. Out of the 800,000 individuals in the country who claim they are financial advisors/planners, fewer than 1,300 in the country qualify for the membership; Rich is one of them.

Rich is the President of the Financial Planning Association (FPA) of Michigan . The FPA of Michigan is one of largest and influential chapter in the country. Rich was recently named President for Transportation Toastmasters Club 4776 downtown Lansing . He has been quoted in both local and national media from Noise Magazine to CNBC, and Bloomberg, and industry news publications such as Investment News and Financial Advisor Magazine. Rich enjoys public speaking and has spoke at industry educational meeting, high schools, and executive investment clubs, AARP conferences, and business educational seminars for companies looking to educate their employees. Rich views his role as a Fiduciary for his clients as the single biggest key to any planning relationship and strives to provide the most competent, unbiased and objective advice in the financial planning profession today.


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  • Thanks Raja. Glad you enjoyed it! I’ve been meaning to update this because there has been new research targeting the best savings rate for retirement. Similar to the withdrawal rate research that usually points to 4% withdrawal, this research shows 16.5% or thereabouts is suggested for saving for retirement. But I need to do more research myself.

  • This is the pfreect blog for anyone who wants to know about this topic. You know so much its almost hard to argue with you (not that I really would want…HaHa). You definitely put a new spin on a subject thats been written about for years. Great stuff, just great!

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