Too little saved? Here’s how to fix it

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How much of your income you should save? It depends on your personal circumstances, but here is a general rule of thumb: save 20% of your income before taxes. This percentage may seem high, but it is possible. And so it goes.

When I ask friends, family and clients why they don't save enough money, I hear one reason above all: "I don't earn enough money". As a result, saving until the next salary increase becomes a low priority. When they get more money, they often spend it on improving their lifestyle rather than saving more. This is why the majority of americans are ill-prepared for financial goals like retirement. According to a recent survey of 2 by gobankingrates.000 americans have 42 percent less than 10.000 U.S. Dollars saved for retirement – and 13.7 percent have nothing at all saved for retirement.

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Hold high costs accountable

In my experience as a financial advisor, high expenses usually kept people from saving enough. In some cases they didn't make enough money, but usually they had no idea how much money they were spending on things they really didn't need.

You have more control over your spending than you think – but first you need to figure out how much you're spending and on what. Research commissioned by ladder and conducted by onepoll found that the average american spends 18.000 US dollars or almost 1.Spending $500 per month on non-essentials. Knowing how much you're spending on big bills like your rent/mortgage or car payments is easy, but smaller purchases often escape the budgeting process. To get a better idea of what you're spending, keep a list of all your expenses, from the very largest bill to the smallest purchase, for at least a month. Use this list to determine which of your purchases you actually need (essentials) and which you just want (non-essentials). Then, find out how much of your expenses are used for non-essential purchases.

Reduce your spending

If non-essential expenses make up a significant portion of your spending, you're in luck! It is the costs that are easiest to reduce and redirect towards savings. You don't have to give up everything you enjoy, but you will have to cut back. Small changes like bringing your lunch to work every other day of the week, canceling subscription services you don't use often, or carpooling a few days a week can help you reach this goal.

If your essential expenses make up the majority of your budget, you need to take a different route. About 50% of your income should be used for fixed expenses – but these calculations are vital for you to survive. Instead, begin to determine if you are living beyond your means and how you can reduce these expenses over time. If your rent is too expensive, think about moving. If you have a mortgage, consider refinancing at a lower interest rate to reduce that payment.

Making these changes will take longer than eliminating non-essential expenses, but it will still get you on the right track. If eliminating your expenses seems impossible, don't lose hope. Work to keep all current expenses you can influence under control, and fully divert money from future income increases or one-time payments like a tax refund into savings.

Invest your savings

After you get a handle on your spending and start saving more, you can focus on channeling those savings into investments to further grow your wealth. Before you start, make sure you have an adequate emergency fund-enough to cover at least 6 months of your expenses. After that, you can start investing the extra money you save each month.

Savings accounts will not earn you much interest – in most cases less than 1%. But if you had invested in an equity ETF with companies with a high market capitalization over the last 10 years, you would have achieved an average annual return of 13.84%. This higher return comes with higher risk and more volatility, so you want to invest money you won't need anytime soon. You'll also want to make sure you've diversified your investments to spread out that risk. An index fund or ETF that is already diversified can provide you with an easy, relatively convenient investment option.

You have every right to spend your money on things you enjoy. But if you have to sacrifice your savings to do it, you have to change your habits. If you prioritize saving, you can achieve important goals, such as. B. Successfully retire or send children to school without incurring debt. Regularly saving 20% of your annual income may take time, but these changes will get you closer to that goal.

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