🤔 Is 10% savings enough?
Not saving enough? Create Your Own Savings Rule for Financial Freedom.
I prefer managing our finances in a straightforward, simple way. Everything—whether it's saving or investing—should align with that simplicity. This makes it easier to handle our financial tasks without needing to make a new decision every month.
Does that sound complicated?
I don’t mean to overcomplicate things. What I’m really saying is that we already make countless decisions every day, from housework to cooking and beyond.
Finances shouldn’t add to that list. Instead, they should be clear, intentional, well-planned, and rooted in our financial priorities and, most importantly, our capabilities.
Once you’ve made those decisions, you can automate them to run in the background, freeing up your mind to focus on your daily life.
This approach simplifies your financial journey while allowing you to save more effectively.
Side note: If you’re just starting to organize your finances, automating savings or investing might seem like a distant dream—and that’s okay. Don’t worry. Once you’ve defined your savings goals and assessed your financial situation, you'll be able to put those systems in place. Stick with it, and this lesson will serve you well when it's time to determine how much you want to save.
Forget the 10% Rule: Why You Should Create Your Own Savings Plan Instead
I know there's a lot of talk about how much we should save each month. In a recent post, I discussed different budgeting methods and explored some of those options.
When we talk about saving, it often comes down to specific amounts or percentages—like the rule to save 10% of your income.
But which rules actually work, and where do you begin if you're unsure how to start?
Before diving into the 10% rule and when it may or may not be a good fit, I want to address something else: the idea of not following the crowd.
While financial rules can be helpful if you’re lost and need a starting point, they can also create unnecessary pressure.
It’s easy to feel discouraged when you can't meet the expectations everyone seems to be talking about—how much you should save, how much you should invest.
That’s why I like to step back when I feel overwhelmed or when something doesn’t fit my life at the moment. And you can do the same.
Set your own rule—a rule that aligns with your current life circumstances.
It doesn’t mean you can’t follow the 10% rule later if it works for you. It’s not about shutting the door on these guidelines, but about making things possible for yourself when a rule isn’t realistic right now.
This might be a great time to create your own rule, even if just for a while.
In summary: Saving 10% of your income is widely considered a smart way to build a solid savings foundation. But regardless of where you are on your financial journey, what matters is that you're making an effort to save—whether that’s a little or a lot. The key is to create a plan that allows you to reach those savings goals over time while staying focused and committed.
In short, start with whatever you can save and create your own rule—a rule that works for you.
The 10% Rule in Relation to Your Finances
In a nutshell, the 10% rule suggests setting aside 10% of your income for financial goals like building an emergency fund, saving for retirement, or investing.
But is this enough? We’ll explore that in a bit.
The reality is, depending on your short-, medium-, and long-term goals, saving 10% might fall short.
Your savings rate should ideally be tailored to how fast you want to achieve your goals and how much you realistically need to reach them.
What the 10% Rule Actually Looks Like
Saving 10% of your post-tax income is a great starting point, especially if you're just beginning to save or if your income doesn't allow for a higher percentage right now.
For instance, if you earn $2,100 after taxes each month, the 10% rule would have you saving $210 monthly. Over the course of a year, you'd accumulate $2,520 in savings.
While this method helps you build a solid savings foundation, it's important to push yourself to save more as your income grows or as you find ways to cut expenses.
So, is saving 10% of your income even worth it?
Even saving just 10% of your income is definitely worthwhile, especially if you have clear financial goals.
While it might take longer to reach those goals by saving only 10%, the key is building the habit of saving and having some money set aside.
In the meantime, you can explore quick strategies to increase your emergency savings and boost your monthly savings rate.
Here’s why saving 10% of your income can make sense:
Establish a habit: Saving 10% helps you develop a consistent savings habit. Once you’re used to setting aside a portion of your income, it becomes easier to increase that amount as your financial situation improves.
Build an emergency fund: An emergency fund is essential for covering unexpected costs, like car repairs or job loss, and avoiding new debt. Saving 10% can gradually help you build this safety net.
Benefit from compound interest: Over time, steady savings combined with compound interest can significantly grow your savings. Even small amounts can accumulate into much larger sums.
Financial security: Regular saving creates a buffer for life's surprises, reducing financial stress and providing a sense of security.
Achieve your goals: Whether you’re planning to buy a home, start a business, or take a dream vacation, saving 10% is an important step toward turning those goals into reality.
So how much should you really save?
Ultimately, the best savings strategy is one that works for you and your unique situation.
The 10% rule might be a great starting point—it's simple and manageable for many. But not everyone can save 10% right now, and that’s okay. You can set it as a future goal!
If you're able to save more than 10%, challenge yourself to do so. And if you can’t save more immediately, set a higher target (e.g., 20%, 25%, or even 30%) to work toward as you progress on your savings journey.
As I always say, the key is to just start!
While saving 10% is a popular guideline, it may not always be enough depending on your personal circumstances.
Here are a few reasons why a different strategy might work better:
High cost of living and inflation:
In areas where the cost of living is particularly high, essentials like rent and groceries can consume a large portion of your income, making it difficult to save just 10%. Additionally, inflation erodes purchasing power over time, so saving more can help mitigate its impact.Debt load:
If you're carrying significant debt, especially high-interest debt, focusing on paying it off may take precedence over saving. Financially, it often makes more sense to allocate a larger portion of your income to debt repayment before ramping up your savings.Ambitious financial goals:
For those with big financial dreams—like retiring early, starting a business, or buying a home in an expensive market—saving only 10% might not get you there fast enough. A more aggressive savings plan may be needed.Unpredictable income:
If you're a freelancer or entrepreneur with fluctuating income, saving a fixed percentage each month may not be feasible. In this case, adopting a more flexible strategy—saving more during high-earning months and less during leaner ones—could be a better fit.Short-term goals:
If you have specific short-term goals, such as buying a home in the near future, a higher savings rate will help you achieve those faster. Saving more than 10% might be essential in these cases.
On The Blog
Ready to transform your financial future? In my latest post, I share 10 foolproof strategies for saving $10,000 in just one year. From creating a budget to automating your savings, these tips are designed to help you take control of your money and hit your financial goals. Plus, don’t miss out on the free savings tracker I’ve created to keep you motivated and on track month by month!
Bottom line
While saving 10% of your income is a great starting point, it may not always be enough depending on your circumstances.
Whether you're facing a high cost of living, a heavy debt load, or ambitious financial goals, it's essential to evaluate your situation and adjust your savings rate accordingly.
The goal is to create a savings plan that works best for you and brings you closer to financial stability and success.
Stay tuned! In my upcoming post, I’ll show you how to start saving with the 10% rule, how to increase your savings over time, and where to invest that extra money.
P.S. I created a free spreadsheet that simplifies budgeting through percentages, featuring all four methods in one place. Explore which one suits you best with the "Dollars & Percentages" spreadsheet. Get it now! Use this as an outline alongside your favorite budgeting app.