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Affluent Christian Investor | October 23, 2017

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What Percentage of Your Income Should You Save?

piggy bank savings PUBLIC DOMAIN

Americans are currently saving an average of 4% of their annual income.  This is the lowest savings rate for any country in the developed world.  At a seminar I just completed, a participant asked me, “Well then, what is the right percentage of our income that we should be saving?” Glad you asked.

First, make a distinction between money that you want to save and money that you want to invest.  Savings should be money that is relatively safe, and can be accessed at any time a need arises.

It is important to save $1,000 and to keep that money on hand in an Emergency Savings Account that you do not spend unless absolutely necessary.  Next, keep saving until you have 3 to 6 months of your living expenses in this account.

After these savings goals have been met, you should save for major purchase and begin using those funds to invest.  Most people I talk to have a problem because they start investing money BEFORE they have adequate savings.  This means when an emergency arises there is normally a penalty to take money out of your retirement plans.   Think of the horse and cart analogy. The horse comes first.  It should be a regular savings habit sufficient to meet these two goals. The cart is the long-term investments that come later.  The percentage is up to you so long as you are able to hit these minimum savings targets in a reasonable amount of time.  Once you have hit those targets, I think a regular habit of saving 5% of your income is appropriate.

 

Originally posted on Crown.

Chuck Bentley is CEO of Crown, a non-profit business and personal finance policy and educational organization, and author of “The S.A.L.T. Plan. How to Prepare for an Economic Crisis of Biblical Proportions” and “Root of Riches, What if everything you think about money is wrong?”

 

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