I may earn money or products from the companies mentioned in this post.
It’s common knowledge at this point people in the United States aren’t well known for their savings. We love buying the newest, shiniest thing whether that be cars, clothes, gadgets, etc. And who could blame us? New things are always nice. What’s wrong with getting the newest PlayStation or clothes of the season? Can’t wear the same shirt in pictures twice, that’s ridiculous.
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The Average Savings Rate in the United States
According to bea.gov, the personal savings rate for July 2019 was a meager 7.7%. And that’s taking everything into account. I mean savings for anything like a house, college, emergency fund, retirement, etc. It’s recommended you save 10% of your salary each year for retirement. I personally don’t think that’s even remotely close to enough, especially if people are wasting their money investing in bonds.
But if you’re not even meeting the annual recommended savings rate for retirement, you need to reprioritize your life. It’s not about making dramatic sacrifices to your daily life. It’s about looking at the excesses and how to modify your spending around them. If you’re making $65,000 living in an expensive area, then maybe it’s worth considering taking a break from ordering out so frequently and hitting the happy hour every Thursday.
Choose cheaper forms of entertainment. Even consider staying home once in a while. How about instead of going to every single wedding you’re invited to, say no to most of them. One of my friends went to literally 17 weddings last year. Being generous, that’s at least $5,000 in gift money spent. That’s not even including money spent on transportation, hotels, tips, etc. It probably cost more like $12,000 if I’m being honest. It’s a complete waste of money.
The very least you can do is max out your company’s 401k matching plan. Usually, the norm is 50% up to 6%. At least that’s still 1.7% better than the average in the country. It’s not great, but it’s a start.
If you make $65,000 and do the bare minimum with the matching plan, this is what your retirement savings could look like if it were all in an S&P 500 index fund:
Not bad for doing the bare minimum of a matching plan. And yet, Americans all over the country spend their dollars living in the moment instead of preparing for their future. Think about your future self if you want to make better decisions for your retirement situation. Do you want to be living on social security if it even exists then or do you want to relax without worrying about money, doing whatever it is you want on any given day? The latter sounds much better.
If you want to live a great life in retirement, it starts with what you’re doing today. Take control of your spending and savings situation. Learn what type of retirement plan is best for you. Then increase your savings rate to at the very least 10% and if you can. Between you and your significant other, make it 15%.
And calculate the rate of return based on your savings rate and average return. If you’re in a target date fund, you’ll get nowhere near 10%. Play it safe and base it off a 5% return. This is because you’ll be invested in bonds, international stocks and who knows what else. Chances are you’ll want to increase your savings rate once you see the final total.
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