Build a Wealthy Retirement by Practicing Healthy Savings Habits

InvestmentYou

This week, we’re honoring National Savings Day by taking a look at our readers’ savings habits.

It can be difficult to save for a distant retirement or to manage high monthly expenses and still set income aside – but as our readers know, it is crucial to save early and often. As one reader wrote…

My 7-year-old granddaughter has a “bank,” which has three slots… save, share and spend. When she receives cash money, she allocates money into each slot…

In addition, she does have a savings account at her parents’ credit union. She knows that this is her 529 college fund, and she periodically checks it.

This week, we asked Wealthy Retirement readers how they have been doing dividing their income among the categories of their own piggy banks.

How Much Should You Be Saving?

First, we asked our readers how much income they set aside while working. The majority of our respondents reported setting aside between 10% and 20% of their income.

Others reported setting aside between 30% and 50%, and a few readers even reported saving 60% or more – an impressive effort.

A small cohort of our readers reported saving nothing.

Sometimes, it can be difficult to save… Low or inconsistent income, unexpected expenses, debt, lack of formal financial education, and limited access to tax-advantaged plans are just a few common hurdles.

However, no matter how late it may feel, there’s no time like the present to get started.

Once you’ve resolved to make saving a habit, determine what proportion of your income you can afford to set aside.

Fidelity recommends saving at least 15% of your pretax income.

Savers seeking a more comprehensive plan can also consider the popular 50-20-30 budget rule. This rule allocates 50% of after-tax income to needs like living costs and minimum debt payments, 30% to nonessential “wants” like cable television, and 20% to savings, investments and debt repayment.

However, before you get starry-eyed at potential capital gains, remember that the first goal of building a saving habit is to establish a strong safety net.

According to traditional wisdom, you should aim to have at least six months of expenses set aside and should consider maxing out your 401(k) contributions as well before you begin investing.

In 2019, the maximum 401(k) contribution is $19,000, plus an additional $6,000 if you are 50 or older and wish to make a catch-up contribution.

For an IRA, this limit is $6,000 for savers who are not yet 50 and $7,000 for savers older than 50 who are making catch-up contributions.

Then, once you’ve got a fledgling nest egg, you can consider putting it to work…

Where Should You Hold Your Savings?

Next, we asked our readers where they hold their savings. The majority of our readers indicated that they use more than one type of account to protect and grow their wealth.

The majority, however, have turned to tax-advantaged plans, like employer-sponsored

Source:: Investment You