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Any financial advisor will tell you that you need a plan for every income you earn.
However, certain expenses are easier to budget for than others. For example, you probably know how much you’ll need to pay for rent and utilities each month.
Things get a little trickier when your needs are less pressing, like saving for retirement. How much or how little you can save depends on many factors unique to you, including your income, debt level, and personal goals.
But if you just want to get things moving, “a good rule of thumb is looking at 10% of your gross salary,” Douglas Bonepers, certified financial planner and president of Born Fied Wealth, recently told CNBC I mentioned it in Make It: Your Money Virtual Event.
For someone making $50,000 a year, stashing away $5,000 a year is “a good start,” he added.
“Obviously, the more the better,” Bonepers told host Frank Holland. “If they fall into the 20% to 30% category, they are considered very good or excellent. Above that, they become our super savers and super investors.”
Bone Perth knows that saving money in a retirement account may not be at the top of your financial to-do list. After all, you may be carrying a lot of high-interest debt, which puts a strain on your finances and should be prioritized over investments.
You may also need to build an emergency fund to protect other aspects of your finances from unexpected expenses. “There is no use in investing money if you have to.” [sell] Do you make those investments because something is going to happen? That’s why it’s even more important to have cash on hand,” Vonepers said.
And of course, you, like everyone else, want to save as much as possible. But here too there is a life to be lived. Bonepers said what makes managing personal finances difficult is “finding a balance between comfort and cost of living and the ability to save or invest on an ongoing basis.”
For some savers, finding room in their budget to invest for the long term can mean skipping short-term comfort. Financial experts will tell you that the reason this is valuable is because the money you invest theoretically grows with compound interest over time.
This means that stashing away a relatively modest amount now can pay off big later, especially if you can start investing early.
Let’s say a 22-year-old woman with a salary of $50,000 follows Bone Purse’s advice and invests $5,000 a year in a retirement account. According to Make It’s compound interest calculator, assuming she earns her relatively modest 7% annual return and maintains the same annual contributions, she will have $150 in her account by the time she retires at age 67. That leaves more than $1,000 left over.
Even if you can’t make it to 10% right now, every little bit of contribution helps. In the same example, an investor contributing $200 per month would end up owning about $734,000 by age 67.
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