Why you must save at least 20% of your income?


Many sources advocate saving twenty percent of your financial gain monthly. According to the popular 50/30/20 rule, you should reserve fifty percent of your budget for essentials like rent and food, thirty percent for discretionary defrayal, and at least twenty percent for savings. (Credit for the 50/30/20 rule goes to Senator Elizabeth Warren, who reportedly used to teach it when she was a bankruptcy academic.)

save income

We agree with the recommendation to save 20 percent of your monthly income. But it’s not always that simple to suggest the right percentage of income for you to save.

Why 20 percent?

Save at least 20% of your income as according to our analysis, 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 20 percent of your income to have a shot at achieving financial independence before you’re too old 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. Sure, you’ll still want an occasional vacation and something in an emergency fund in case your car coughs up a radiator.

Beyond that, however, we save so that one day we no longer have to work for the money. For most of us, that day won’t come for many decades, but there are regular working people who reach it as young as 40 or even 35.

What are you saving for?

It depends on whether you’re willing to live at the poverty line, need two homes and a sailboat, or fall somewhere in between. It also depends on how well your investments perform. If you can earn an average annual return of seven percent on your money, you can stop working with a lot less than if you only earn three percent.

1. Become Financially Independent.

save at least 20% of your income for financial freedom

The measuring stick for being rich is different depending on who you talk to. However, the one thing that the notion of “being rich or wealthy” means to most people is having financial independence and savings to depend on. Calling your own shots, financially speaking, means having the freedom to make choices in your life separate from earning a pay cheque.

2. Save 50% on Everything You Buy and 24% on Groceries.

If you normally charge all of your purchases on your credit card, and then you don’t pay off your credit cards in full every month, because of added interest charges you are probably paying at least 50% more for everything you buy. If you are relying on your credit cards to afford your lifestyle, break your expensive credit habit by saving up for your purchases ahead of time. 

With savings, you’ll be able to get things after they square measure on sale and take the time to form higher defrayal selections. Folks with savings may stockpile groceries after they square measure on sale . One author suggests those that try this will presumably skip one grocery search a month and save pure gold a year on their grocery bill.

3. Emergencies.

save at least 20% of your income in case of any emergency

As much as we hope that emergencies won’t happen, we all know that they do. A family member can develop a health issue, you might need to make an emergency trip, you may have a car accident or breakdown, severe weather could flood your basement or crack your pipes, or you may have to fly to a loved one’s funeral. Any of these emergencies can be expensive, and we all know that we will likely encounter some sort of emergency from time to time. So why not be prepared rather than potentially become another victim of an emergency.

4. Annual Expenses.

Save at least 20% of your income, if you want to have a good, relatively stress-free financial life, you need to save for annual expenses. These may include money for gifts, vacations, vehicle maintenance, minor home repairs, fixing appliances, property taxes and possibly income tax. It can be tempting to refinance a mortgage to pay off debt or to use a line of credit to pay off high-interest credit cards, but it is dangerous to endlessly put expenses on credit without actually paying them off.

The best way to manage these types of expenses is to save them in advance. This will not only save you money, but it will give you peace of mind. 

5. To Have a Good Life.

For living a good life save at least 20% of your income

There is a little known truth that happiness can come from being organized(Save at least 20% of your income). Being organized isn’t going to make you happy all by itself, but it can sure help. There’s so much in your future that you don’t have control over, so putting aside some money to spend when you need it is actually organizing and taking control of your future and financial affairs. You have nothing to lose by saving – and only a happier future to gain.

Read about some more interesting Life Facts: Crazy Life Gyan