Are You Stuck?
Finding the right balance between saving and spending enough to protect your plans for the future while still allowing yourself to enjoy the years in between is not an easy task, but not impossible. The ingredients for a perfect combination of life now and in the future are planning, budgeting, and discipline. These three principles apply to both individuals and businesses.
Most people are either on one end of the spectrum or the other. Maybe you are more likely to save a lot of money at the expense of losing out on life now, or you are a bit too optimistic about the future and don’t save enough for the eventual day when you can no longer work for a living or don’t want to.
To support your future lifestyle, you need to figure out how much to save and how much you can spend responsibly along the way. You also need to figure out the amount that you would like to have for a set number of years. If you hope to achieve financial freedom in the future, putting away at least 30% to 40% of your gross income will help you get there. We (my husband and I) put this into practice, but we have at times adjusted this rate due to emergencies, life changes, etc., so you are not locked into whatever rate you started. You are free to make adjustments as life happens, but remember, you will need to make up for the lost time when life is a bit easier financially to support your lifestyle in the future.
Using the scenario of saving 30% as an example, with a gross income of $100,000, put aside $30,000 (30%) equals $70,000 leftover. If you have a mortgage, a rule of thumb is your mortgage payment should not be more than 28% of your gross income. It is wise not to overextend yourself with a larger mortgage. With the example above, a $70,000 less $28,000 for mortgage leaves you with a gross income of $42,000. If you are married with no children using standard deductions for taxes, your estimated tax liability (2020) is approximately $10,892 (this is just an estimation, please check with your accountant regarding your tax liabilities). Therefore, the amount you may spend freely to cover other things you want to enjoy in life now (new car, electronics, vacation, etc.) is $31,108 for the year. (Gross Income $100,000 - $30,000 - $28,000 - $10,892 = $31,108/12 months = $2,592.33 per month).
Saving 30% of your gross income will give you a nest egg of about $600,000 in 20 years without considering any salary increase nor interest, or investment profit. If you saved 40% instead, you would have a nest egg of about $800,000 in 20 years; it all depends on the type of lifestyle you expect to maintain in the future. Finding a balance between enjoying your life today while still preparing for tomorrow is essential. The earlier you start saving, the more significant your nest egg will be.
