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Find Your Savings Sweet Spot: How Much Should You Really Be Saving?

Writer's picture: Kurt Angstadt, CFP®Kurt Angstadt, CFP®

Someone recently asked me about how to find the "right" savings rate. They were already budgeting and saving 17-20% of their income, but were wondering if there was some magic number or rule of thumb to aim for. 

It was a great question. But like many of the answers in personal finance: it’s not one-size-fits-all. Unlike building a house, where you follow precise blueprints, financial planning involves a lot more guesswork and adapting to individual circumstances. But there are some things that everyone can do to achieve the “savings sweet spot” for each unique situation, and why doing so is so important.



Start Early, No Matter How Small 

One thing that’s true across the board: the earlier you start saving, the better. Even small amounts saved consistently can make a huge difference over time, thanks to the power of compounding. Compounding allows your money to grow exponentially, with earnings generating even more earnings over time. If you haven’t already, set aside some money right away, and make a plan from there. 

Create a Personalized Plan

Speaking of plan, having a comprehensive financial plan is crucial for determining your ideal savings rate. A well-crafted plan takes into account your income, expenses, goals, and risk tolerance. But all of these things will change overtime. So by regularly reviewing and updating your plan, you can ensure you're on track to meet your financial objectives and adjust your savings rate as needed.If this sounds a little daunting, K Wealth Advisors is here to help you get started. Contact us to chat about all the important aspects of an effective plan and how they apply to you.  

Balance Rules of Thumb and Reality

You might have heard of the 50/30/20 rule: 50% to necessities, 30% to wants, and 20% to savings. While a helpful starting point, it's not universally applicable. Your lifestyle, location, and financial goals all influence your ideal savings rate. For example, for those living in more costly cities or urban areas, 50% of your income may not be enough to cover necessities, depending on what your income is. It also may not be realistic for budgeters who are looking to pay off debt faster.

Follow the Double-Digit Savings Goal

Ok, I know we said to be careful with rules of thumb but after years of experience and analysis, I've landed on this simple guideline as a reliable one: aim for a double-digit savings rate as a percentage of your pre-tax income. Start with 10%, and gradually increase it as your income grows, ideally reaching 15-30% or even higher.

Maximize Raises, Bonuses, and Windfalls

When you receive additional income, such as a raise, bonus, or unexpected money, consider allocating it in a way that helps you get the most of the extra cash. This is an example of where the 50/30/20 budget does really come in handy, as it allows you to still enjoy and reward yourself. This strategy helps you increase your savings and enjoy your extra income without making significant changes to your current lifestyle.

Why a Healthy Savings Rate Matters

A robust savings rate offers multiple benefits. From wealth building and financial independence to emergency preparedness and peace of mind, here are just a few: 

  • Less to Replace in Retirement: The more you save now, the less you'll need to rely on investment returns or other income sources later.

  • Compounding: Like we said before, by investing now, your savings have more time to grow and compound, generating significant wealth over the long term.

  • Margin of Safety: Life throws curveballs. A healthy savings cushion provides a safety net for unexpected expenses or financial setbacks. (Helpful Tip: aim to have enough saved to cover 3–6 months' worth of essential expenses.)

Finding Your Personal Balance

My personal savings rate currently ranges from 25-30%, but it took time, as well as gradual increases with each raise or new job, to get to this point. Unpredictable life events can always throw a wrench in your plans, and we were no exception. There have been times when our savings rate has dropped to almost zero. 

The key is to find a savings rate that feels slightly challenging but still allows you to enjoy your life today. It's a balancing act between present spending and future financial security, but it’s possible with the right planning. 

Thinking Beyond Retirement Accounts

In addition to maximizing your retirement contributions, take advantage of a tax-efficient brokerage account to enhance your savings strategy for other goals, such as a down payment on a house or your children’s education. Remember that not all savings need to be invested in the market; other options like real estate or syndication can also help you reach your financial goals.

Don't aim for a perfect solution, instead, build a sustainable savings habit that aligns with your long-term goals. Regularly review and adjust your budget and savings rate as your income and circumstances change.



If you need help developing a well-defined financial plan that can guide you towards your ideal savings rate and ensure long-term financial well-being, schedule a GoodFit meeting to discuss your goals and options. #KWA 





Insightful Planning to Live Your Best Life. #IPtLYBL




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